The stock prices of several regional banks plummeted on Thursday, a sign investors aren't convinced that the troubles of the past two months are over.
Shares of PacWest Bancorp closed down 50%, and the Beverly Hills, California-based bank indicated that it was exploring strategic options. Western Alliance Bancorp in Phoenix lost 38% while Comerica in Dallas lost 12%. The KBW Nasdaq Banking Index fell 4%.
The sharp price declines highlighted investors' shaky sentiment about the health of the banking sector. Industry leaders had predicted that the announcement of JPMorgan Chase's
Large declines in a bank's share price can pose risks for a bank — in addition to those faced by shareholders. When prices fall dramatically, depositors can get spooked and begin withdrawing uninsured deposits. In turn, deposit declines reported by banks can trigger further trouble for a bank's stock price.
"If this scares enough depositors that they leave, the bank in question could have problems creating more liquidity," said Tim Coffey, associate director of depository research at Janney Montgomery Scott.
Analysts at Autonomous Research wrote in a research note Thursday that there are "obvious fears of the negative feedback loop between stock prices and deposits."
The banks affected in this round of
In addition, many of the banks that saw their stock prices plummet this week have reported steady deposit balances in recent weeks — another key difference between them and the banks that suffered large deposit outflows in March.
Deposits at Western Alliance have so far been stable in the second quarter, including since the announcement of JPMorgan's acquisition of First Republic, the bank said Wednesday. Total deposits had risen to $48.8 billion on Wednesday, up from $48.2 billion on Monday.
Western Alliance's stock fell sharply on Thursday after a report from the Financial Times said the bank was exploring a sale. In a statement, Western Alliance called the report "categorically false" and said "We are exploring all of our legal options in response to today's article."
Share prices at banks like Western Alliance are falling because of a bearish trading strategy in which the stock is shorted, not because of weakness in the bank's fundamentals, Coffey said.
One regional bank that lost substantial deposits during the first quarter is
"The largest four banks could get away with it, but the next tier does not seem to have that benefit," Moreland said.
In a statement posted to its website this week, PacWest said that it hadn't seen "out-of-the-ordinary" deposit flows in recent days. Core deposits at the bank have increased since the end of the first quarter, totaling $28 billion as of May 2.
PacWest said that its cash and on-hand liquidity are at 188% of the level of its uninsured deposits. The bank also said that its previously announced plan to
And after Bloomberg News reported Wednesday that
"The company will continue to evaluate all options to maximize shareholder value," PacWest said.
