Another US bank in trouble: PacWest shares collapsed 46% before the opening of Wall Street

Pacific Western Bank, PacWest, is the new focus of fears for the health of the US banking system (Reuters) (MIKE BLAKE /)

The actions of regional banks Americans fell this Thursday before the opening of the markets, weighed down by the collapse of 46% of PacWest Bancorp, after his announcement about exploring strategic options stoked market concern over the worsening banking crisis. The Los Angeles-based bank is the new focus of the fears that ended with Silicon Valley Bank, SignatureBank and this week with First Republic Bank. Following another Fed rate hike, investors are wondering where the domino effect will end.

Also the actions of Western Alliance Bancorp they plunged 17% in pre-opening trading on Wall Street despite an attempt to reassure investors. The entity assured that it had not experienced unusual deposit outflows after the sale of First Republic Bank to JPMorgan Chase on Monday.

They are not the only two banks whose shares are under siege. Zion Bank Corporation, keycorp, Valley National Bancorp, commercial and First Horizon they fell between 2% and 6%. The SPDR S&P Regional Banking ETF, a fund that groups shares of dozens of US regional banks, lost 2.8 percent.

Reuters reported on Wednesday that pac west It was exploring strategic options, including a possible sale or capital increase, after a cash injection announced in March failed to inspire confidence in its battered share price.

“Investors fear that PacWest will be the next domino to fall, amid concerns over deposit flight and a lack of asset diversification among smaller lenders,” he told Reuters. Susannah StreeterHead of Money and Markets at Hargreaves Lansdown.

The fall in shares of PacWest and its peers highlights uncertainty surrounding the health of regional banks despite regulatory efforts to end the banking crisis that began with the collapse of Silicon Valley Bank and Signature Bank in March.

“”Investors fear that PacWest will be the next domino to fall” (Streeter)

PacWest’s stock shock comes after US regulators seized control of First Republic Bank and JPMorgan Chase agreed to buy most of the assets, marking the biggest US bank failure since the 2008 financial crisis.

The Chairman of the United States Federal Reserve, Jerome Powellreiterated on Wednesday that the country’s banking system remains resilient despite the “tensions” in March, after the central bank announced a 25 basis point rate hike.

According to the CME’s FedWatch tool, US interest rate futures forecast a pause in monetary policy tightening at the June and July meetings, as well as a more than 50% chance of cuts at the September meeting.

Biggest US Bank Crashes Infographic

In the past 14 months, the Federal Reserve has raised rates by 500 basis points to tame price pressures in its most aggressive tightening since the 1980s.

PacWest Bancorp posted a $1.1 billion loss attributed to shareholders in the first quarter of the year.

US stocks closed lower on Wednesday after Federal Reserve Chairman Jerome Powell said it was too early to say with certainty that the rate hike cycle was over as inflation remains the top concern. .

Why do American banks suffer?

Investor concerns about banks have persisted despite steps taken by regulators to contain a banking crisis that began with the collapse of two midsize US financial institutions in March.

The cycle of Fed rate hike found much of the US financial sector in a bad light. The huge injections of money made during the pandemic by the monetary authority itself, and by monetary authorities around the world, generated enormous amounts of liquidity in banks in the form of deposits.

Part of these deposits were destined for the granting of credits, but not even the largest economy in the world demands so many loans. The surplus had to be invested, and a large part of that liquidity went to be parked in US Treasury bonds. The Fed’s rate hikes raise the yields on those bonds. And – since a rise in yields implies a fall in prices – many banks found themselves with unrealized losses.

On Monday US regulators took control of First Republic Bank while JP Morgan agreed to keep most of its assets (Reuters)
This Monday the US regulators took control of First Republic Bank while JP Morgan agreed to keep most of its assets (Reuters) (BRENDAN MCDERMID /)

If they wait for those bonds to mature, the losses will be nil. But if their customers call in their deposits before their debt holdings mature, banks are forced to sell those bonds at a significant price cut. In some cases, those haircuts were so large that the money raised from the sale of the securities was not enough to repay their clients’ deposits.

Thus, the continuity or not of the tightening of the monetary policy of the Fed -which tries to end the highest inflation in four decades- is key to elucidate if there are more banks waiting to star in their own collapses.

“Trust in a financial institution is built over decades and is destroyed in days. As each domino falls, the next weakest bank begins to falter. Until investors are rewarded for betting on a faltering bank, there will be no offer, and the best sale will be the last price,” said the legendary investor. bill ackman on his Twitter account.

“We are running out of time to fix this problem. How many more needless bank failures do we have to see before the FDIC, Treasury and our government wake up? We need a system-wide deposit guarantee regime now,” he added.

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