First Republic Rescue Couldn’t Halt Slide in US Regional Bank Shares

Republic’s recovery from earlier this week failed to stem a selloff in regional bank stocks, which tumbled Tuesday morning as investors digested JPMorgan’s takeover of the troubled Californian lender.

Trading in PacWest, seen as one of the weakest among mid-sized regional banks, was briefly halted by volatility and was down 25 percent by midday in New York. PacWest posted its worst daily decline since March 10, when the Silicon Valley bank’s collapse piled pressure on the entire sector. The Western alliance is down more than 20 percent.

Both banks have come under scrutiny because of their similarities to SVB and First Republic, which were acquired by the Federal Deposit Insurance Corporation.

JP Morgan bought First Republic’s deposits and most of its assets on Monday, but shareholders were completely wiped out.

“They’re going from weak bank to weak bank. It’s not just short sellers, it’s customers asking if their deposits are safe,” said Chris Whalen, president of Whalen Global Advisors. “The market is focusing on weak links and looking for vulnerable banks.”

The KBW index of regional banking stocks fell more than 5 percent in morning trade. Utah-based Zions Bancorp fell 13 percent in the S&P 500 index.

A bank analyst pointed to a caveat in comments made by JPMorgan Chase Chief Executive Jamie Dimon after the acquisition of First Republic. Although he said Monday’s bailout of the California bank “solves everything,” he prefaced his comments with a caveat that “there could be another little one.”

“People are clinging to that idea,” the analyst said.

Michael Metcalf, head of macro strategy at State Street Global Markets, said “market confusion is understandable” following the First Republic debacle.

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However, he noted that long-term investors have been buying more shares of banks in recent weeks, suggesting “panic or a broader contagion”. He added: “The implication of that [Tuesday’s] Price action is highly speculative driven.”

Big bank stocks also fell, with Goldman Sachs and Morgan Stanley each falling roughly 2 percent. JP Morgan fell 1.4 percent.

Bank stocks are more cyclical and job openings fell to their lowest level since May 2021, the Bureau of Labor Statistics said on Tuesday.

Many high-profile investors and executives have warned of the potential for further fallout from the bank’s failures.

“We’re just getting started,” PGIM Chief Executive David Hunt told attendees at the Milken Institute conference in Beverly Hills on Monday. [to see] The implications for the US economy,” while Investcorp co-chairman Rishi Kapoor said, “There is no doubt that the second- and third-order effect on the banking sector is . . . Controlling financial conditions”.

Regional banks are particularly exposed to commercial real estate, which has recently emerged as an area of ​​concern because of fears that high interest rates and work-from-home will reduce demand for offices.

In an interview with the Financial Times over the weekend, Berkshire Hathaway’s Charlie Munger warned that regional banks were “inundated” with bad commercial property loans.

Investors are betting heavily on further stock declines in some mid-sized banks, with short interest in California-based PacWest. However, the level of short activity has changed little over the past month, according to Markit data.

Mid-sized banks with between $100bn and $250bn in assets are also a concern, as US regulators have said they plan to tighten supervision and regulatory requirements, which will add costs and hit profits for smaller banks.

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Concerns about the debt ceiling could also contribute to the decline in bank stocks, said Casey Hare, equity analyst at Jefferies. “It’s confusing [Treasury] yield curve,” he added. “An inverted yield curve is never good for banks.”

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