Shares of PacWest Bancorp (PACW), First Horizon Bank (FHN) and Western Alliance Bancorp. (WAL) , down about 46%, 34% and 30% respectively at 1:00 p.m. Eastern time, led a broader rout in the stocks of U.S. regional and mid-sized banks.
Concerns that PacWest could be the next domino in the regional banking crisis have put the troubled lender's shares under pressure, especially after reports of it exploring strategic options including a potential sale surfaced last night.
The Los Angeles-based lender reported $5 billion in deposit outflows in the first quarter, which stabilized in the last 10 days of March. Deposits grew by $700 million from the end of the month through April 24.
PacWest shares slipped more than 50% in intra-day trading and have fallen more than 85% year-to-date.
Memphis-based First Horizon Bank's $13 billion acquisition by Canadian TD Bank (TD) was scrapped adding to selling pressure for regional banks, even though TD Bank said it was pulling out because it couldn't get regulatory approvals.
Zions Bancorp (ZION) and Comerica (CMA) shares tumbled roughly 11% while KeyCorp (KEY) shares traded 6% lower. The SPDR Regional Banking ETF (KRE), a benchmark for the performance of small and mid-sized lenders, fell 5%. It’s down close to 40% so far this year.
What's Next For Regional Banks?
While both PacWest and Western Alliance tried to restore investor confidence by clarifying that First Republic's collapse had little impact on their deposits, the outlook for regional banks remains bleak.
Former Federal Reserve presidents Robert Kaplan and Dennis Lockhart described the developments as "worrisome" and said the crisis is far from over as the credit phase of the crisis, which is "normally more serious," has yet to begin, reported Bloomberg. Lockhart hopes Fed Chair Jerome Powell has "more information that suggests the situation is contained or containable."
First quarter earnings for regional banks saw a near-secular trend in deposit outflows, and economic conditions such higher interest rates and quality of loan portfolio—especially commercial real estate loans—will continue to weigh heavy.
"The acute portion of the banking crisis should be behind us," wrote Wedbush analysts in a report Thursday, but the regional and mid-sized banking industry continues to face "many headwinds" such as competition for deposits and credit quality.
"Commercial real estate has become even more of a hot-button issue as loan maturities come due and the prospect of having to infuse additional equity into a rollover transaction by sponsors/owners may cause some properties to go sideways," Wedbush analysts wrote.