WAL - Western Alliance PacWest lead regional bank stocks down in renewed weakness

2023-05-04 11:00:09 ET

That government-brokered agreement for JPMorgan Chase ( JPM ) to acquire struggling bank First Republic Bank ( OTCPK:FRCB ) hasn't staunched the weakness in regional bank stocks since banking stresses hit the sector in early March.

In Thursday midmorning trading, the KBW Nasdaq Regional Banking Index ( KRX ) slid as much as 7.1% on track to its biggest decline since March 13, before narrowing to a3.6% decline.

The decline found fresh momentum when PacWest Bancorp ( NASDAQ: PACW ) confirmed late Wednesday that it's reviewing strategic options including the sale of the company.

In response, PACW stock plummeted 57% in Thursday morning trading. Western Alliance Bancorporation ( NYSE: WAL ) tumbled 39% , and Metropolitan Bank Holding ( NYSE: MCB ) slid 17% , but both are off session lows.

In a separate development, First Horizon ( NYSE: FHN ) stock sank 37% after it and TD Bank Group ( NYSE: TD ) terminated their merger $13.4B merger agreement.

BofA Securities analyst Ebrahim Poonawala explained the overall sentiment on regional bank stocks in a note to clients: "We believe that WAL, and the broader regional banking group, are caught in a negative feedback loop driven by steep sell-off in stock prices that are feeding into deposit attrition fears."

As a result, the analyst moved to No Rating on Western Alliance ( WAL ) on the belief "that WAL is no longer trading on fundamentals, but rather market fears on whether it could experience additional stress on the funding side, potentially further squeeze profitability."

Revamping bank deposit insurance coverage could help to stem the bleeding, Poonwala said, pointing to the Federal Deposit Insurance Corp.'s proposals issued on Monday . "An expansion of deposit insurance coverage (even if temporary) could address some of the concerns tied to the negative feedback loop created by the sell-off in regional bank stocks (and amplified in social media)," he wrote.

Other regional banks with notable declines include: Citizens Financial ( NYSE: CFG ) -8.5% , KeyCorp ( NYSE: KEY ) -7.0%, Huntington Bancshares ( NASDAQ: HBAN ) -5.0% , Truist Financial ( NYSE: TFC ) -5.3%, New York Community Bancorp ( NYSE: NYCB ) -5.2% .

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