Regional Banks Remain On Life Support

Last week saw a number of brutal days for regional bank stocks with that sector swinging wildly amid otherwise modest gains on Wall Street. Despite the best hopes of investors and observers alike, the issue in the U.S. financial sector, which began with the collapse of Silvergate Capital, Silicon Valley Bank, First Republic Bank and Signature Bank, remains a major overhang that threatens to drag the entire stock market along with it. The latest news is that PacWest Bancorp PACW is exploring strategic options and a potential sale. 

Unfortunately, it appears that PACW equity may not have much of a future. That is the story that the market is telling as the stock fell 42% in a single session last Thursday. The following day, however, shares jumped around 70%. 

On Wednesday, May 10, PACW closed above $6.00 – a nice bounce back, but largely irrelevant in the grand scheme of things, with shares still down more than 40% over the last month and the options market implying a very high likelihood the bank’s equity goes to 0 by September. 

The latest massive plunge in PACW comes on the heels of a bloodbath that began in regional banking stocks in March. The contagion, fear and panic are hardly limited to PacWest. The other name that has been targeted by traders in recent weeks is Western Alliance WAL, which has also seen tremendous volatility. That stock has lost more than 50% in 2023 and closed on Wednesday at levels last seen around a decade ago. 

The impetus for the latest round of volatility in WAL was an article in the Financial Times last Thursday stating that the bank is considering strategic options and has hired an advisor to explore a sale.

Western Alliance quickly issued a complete denial of the report, stating: 

“The Financial Times’ report today that Western Alliance is considering a potential sale of all or part of its business is categorically false in all respects. There is not a single element of the article that is true. Western Alliance is not exploring a sale, nor has it hired an advisor to explore strategic options…it is shameful and irresponsible that the Financial Times has allowed itself to be used as an instrument of short sellers and as a conduit for spreading false narratives about a financially sound and profitable bank.” 

The language of the statement was forceful but also appears dubious. First, the Financial Times is a sterling global financial publication. The insinuation that the FT is being used as a megaphone for short-sellers would appear ridiculous on the surface. 

Unfortunately, all indications suggest that Western Alliance’s problems have far less to do with short-sellers and far more to do with an evaporating depositor base. 

Rumors and innuendo do have the potential to take an otherwise viable company down, but the smoke is billowing out of the windows here, unfortunately, and for WAL to characterize its current condition as “financially sound and profitable” seems inaccurate if not outright ridiculous. Other banks, whose equity is currently trading OTC, said the same thing right up until they closed their doors. 

Below, Benzinga takes a more detailed look at how some of the hardest-hit regional banking stocks fared on Wednesday. 

SPDR S&P Regional Banking ETF KRE – Closed down 1% to $37.06. Shares have plunged 14% in just the last month alone and are sitting just above new 52-week low levels. 

First Horizon Corp FHN – The stock closed down another 4% to $10.12. Over the last month, FHN has lost 43%.  

Zions Bancorporation ZION – Finished the day down a little less than 3% to $23.75. The stock has now shed more than 20% in the last month, which comes on the heels of March’s carnage. 

M&T Bank Corp MTB -– MTB lost 1.60% on the day and finished at $114.86. A 52-week low sits just below, at $109.36. The stock is only down around 3% over the last month but has lost over a fifth of its market cap thus far in 2023.  

KeyCorp KEY – Shares slid throughout Wednesday’s trading session, closing down more than 4% to $9.32. Over the last month, KEY has lost 24% and in 2023, the stock has plunged almost 50%. 

Huntington Bancshares Incorporated HBAN – Closed down more than 2% to $9.58. The 52-week low in the name is just below, at $9.21. 

Fifth Third Bancorp FITB –  FITB closed Wednesday’s session down a little less than 2% to $24.24. Year-to-date, the stock is now off around 26% and holding just above 52-week low levels. 

Capital One Financial COF – Shares traded down slightly more than 2% on Wednesday and closed at $87.04. The stock has now lost 12% over the last month but has fared far better than peers year-to-date, where COF is off around 6%.  

Regions Financial Corp - RF – Regions finished up the trading day with a more than 1% loss to $16.09. The 52-week low in the name is at $13.94. Year-to-date, the stock has lost a little more than 25%. 
 

Featured photo by Julien Riedel on Unsplash.