PacWest, Western Alliance and Other U.S. Regional Bank Stocks Are Plunging
Posted on 05/02/2023
The implosion of Silicon Valley Bank, Signature Bank, and recently First Republic Bank is worrying large depositors. Some depositors are fleeing larger U.S. regional banks in favor of the large bulge bracket banks like JPMorgan and Bank of America. The largest banks in the world are likely looking for their next buying opportunity in U.S. regional banks. This is clear as snow as JPMorgan acquired First Republic Bank. The FDIC has embraced the strategy of letting U.S. regional banks fail, selling them to larger U.S. banks, and covering part of the losses. The FDIC has already shared over US$ 35 billion in losses since March 2023. U.S. regulators are trying to avoid anything or any appearance of a “bailout” of a bank.
On May 2, 2023, the shares of many U.S. regional banks have fallen. PacWest Bancorp’s stock is down 29% for the day and stock trading was halted. Western Alliance Bank’s stock is down 25% for the day and stock trading was halted. Metropolitan Bank’s stock is down 24% for the day and stock trading was halted. Even outlier regional banks like Coastal Financial Corporation, which oversees Coastal Bank in Washington state, witnessed its share price drop. Other banks seeing their share prices drop include HomeStreet, Inc. (HomeStreet Bank), Zions Bancorporation (Zions Bank), KeyCorp (Key Bank), HarborOne, and Citizens Financial.
Bank of New York Mellon reported that their Agency Securities Finance business experienced plenty of volatility in March 2023. There was a 35% increase in the demand for borrowing regional bank equities to facilitate short sales or hedging by their hedge fund clients from March 1 to April 11, 2023.
Money Market Funds
Bank of New York Mellon witnessed from their clients that cash was withdrawn from small and midsize banks and placed into government money market mutual funds (MMFs) at a pace not seen since the onset of the pandemic in 2020. Deposits at some large banks also increased, reflecting the search for safety. Money market fund inflows were invested in short-term Treasurys and repos, including repos at the Federal Reserve.
On May 1, 2023, JPMorgan CEO Jamie Dimon said that the banking crisis was over after JPMorgan acquired First Republic Bank.
