Fed Chair Jerome Powell has done little to increase confidence in the US regional banks, with stocks tumbling across the board Thursday.
The KBW Nasdaq Regional Banking Index, which tracks the performance of regional banks in the United States, hit a low of 76 points on Thursday after trading as high as 121 points earlier this year.
The index, which is made up of 50 publicly-traded regional banks and is used by investors to gauge the health of the US banking industry, is down nearly 35% year-to-date.
At yesterday’s Fed meeting, chairman Powell indicated that conditions in the US banking sector had "broadly improved" since early March, but his comments also emphasized that bank lending conditions are likely to tighten even further in response to recent developments, analysts at Deutsche Bank noted.
“Indeed, we interpreted his comments as suggesting the Senior Loan Officer Opinion Survey (SLOOS) data next Monday could show a meaningful tightening of conditions, particularly for small and medium-sized banks,” they wrote.
Central bank rate hikes have taken a back seat to the renewed crisis in US bank stocks, which has prompted additional losses in stocks today, according to Chris Beauchamp, chief market analyst at online trading platform IG.
“The Fed and the ECB might go on merrily hiking rates, but the renewed crisis in US regional banks is the main reason for the firmly ‘risk-off’ tone to today’s session,” Beauchamp noted.
“Other US banks are coming under heavy pressure, threatening once again to upend the stability of the US financial system less than a day after Jerome Powell pronounced it healthy.”
Names like PacWest Bancorp and Western Alliance Bancorp were trading sharply lower on Thursday.
“PacWest Bancorp has taken another nosedive after announcing after the market closed yesterday that it was considering its options with respect to raising new capital as well as considering a sale of the business,” CMC Markets analyst Michael Hewson wrote.
“Western Alliance appears to be following suit with a similar sale process, according to reports circulating this afternoon, although these were later denied by the bank as ‘absolutely false.’
“Recent events have prompted a sharp reversal in sentiment for those who thought that the rescue of First Republic Bank (NYSE:FRC) had lanced the boil of uncertainty around the regional US banking sector, with investors eyeing the sector in order to determine who might be next.”
Shares of both PacWest and Western Alliance banks were deep in the red Thursday afternoon: PacWest by 47% and Western Alliance 33% lower.
Contact Angela at angela@proactiveinvestors.com
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