CMA - Regional bank stocks slump further in day after First Republic deal
2023-05-02 11:58:09 ET
Regional banks stocks resumed their decline as investors digested the details of JPMorgan Chase's ( JPM ) acquisition of First Republic Bank ( FRC ) in a government-brokered deal that provided the Wall Street giant with a loss-sharing agreement.
The KBW Nasdaq Regional Banking Index ( KRX ) dropped 5.9% in Tuesday midday trading, while the KBW Nasdaq Bank Index ( BKX ) fell 4.9% .
The hardest hit stocks include: PacWest Bancorp ( PACW ) - 23%, Western Alliance Bancorporation ( WAL ) -19% , Metropolitan Bank Holding ( MCB ) -17% . Among the larger regional banks, Comerica ( CMA ) slid 10% , KeyCorp ( KEY ) -9.5% , Huntington Bancshares ( HBAN ) -7.3% , and Truist Financial ( TFC ) -6.2% .
There are a lot of broader reasons for today's bank stock slump. While First Republic ( FRC ) was resolved on Monday, the backdrop of problems remain, including strained liquidity, asset-liability mismatches, and continuing deposit outflows.
Many regional banks hold significant commercial real estate portfolios, which are seeing values decline, especially in the office sector.
The overall economic backdrop may also be leading to the slump in trading on Tuesday. The expectation of another 25-basis-point rate hike by the Federal Reserve on Wednesday won't help the mismatch of higher borrowing costs and lower asset values on bank balance sheets.
With the increase in rates, lending standards are also continuing to tighten, risking a credit crunch.
With the string of bank failures, the Fed has called for strengthening supervision and regulation of banks. For example, it said that rollback of some regulations for mid-sized banks contributed to Silicon Valley Bank's failure. That could lead to stricter regulations and more stress testing for banks under $250B in assets, which would also increase costs for banks.
More on the Bank Crisis:
- FDIC proposes changes to deposit insurance system in wake of bank failures
- With FRC's collapse, here are the top 10 regional bank stocks ranked by SA Quant Ratings
- First Republic Bank: As Always JPMorgan Comes to the Rescue
- JPMorgan Chase's Dimon says 'this part of the crisis is over'
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Regional bank stocks slump further in day after First Republic deal