“The banking system is sound and resilient.”
That’s what the Federal Reserve’s press release said on Wednesday in the statement announcing another 25 basis point interest rate hike.
Sound and resilient.
A few hours later, multiple media sources reported that PacWest Bank is exploring strategic options, including a possible sale.
Is PacWest the Next to Fail?
Shares of PacWest stock were already down about 80% since February. After the news hit, the stock took another 50% nosedive.
In fact, since January 1st, its share price has tanked – having fallen from $22.95 to a new 52-week low of $3.17 as of yesterday’s market close.
Bloomberg’s Joe Wiesenthal noted in his Thursday column that “overall, the ‘banking system’ may be sound and resilient, but there's clearly anxiety surrounding individual banks that hasn't gone away.”
PacWest sank over 50% in early trading and was halted multiple times because of volatility.
At the same time, Tennessee-based First Horizon Bank also fell 33% after the regional lender and TD Bank announced that they were terminating their merger agreement.
The banks jointly said that the move was because of uncertainty around when (not if) TD would receive regulatory approval for the deal and was not related to First Horizon.
Other notable declines included a drop of 38% for Western Alliance and 12% for Zions Bancorp. The SIPDER S&P Regional Banking ETF (KRE) was down more than 5%.
Western Alliance’s fall came despite the company advising Wednesday evening that deposits have grown since the end of March.
KBW CEO Tom Michaud said, “That hasn’t taken the heat off of the stock, or the bond prices. Investors are very nervous.
“And I think what they’re nervous about is the fact that Silicon Valley lost 75% of their deposits in 36 hours. There’s not a bank in the world that could really sustain that.”
By Dave Allen for Discount Gold & Silver
“The banking system is sound and resilient.”
That’s what the Federal Reserve’s press release said on Wednesday in the statement announcing another 25 basis point interest rate hike.
Sound and resilient.
A few hours later, multiple media sources reported that PacWest Bank is exploring strategic options, including a possible sale.
Is PacWest the Next to Fail?
Shares of PacWest stock were already down about 80% since February. After the news hit, the stock took another 50% nosedive.
In fact, since January 1st, its share price has tanked – having fallen from $22.95 to a new 52-week low of $3.17 as of yesterday’s market close.
Bloomberg’s Joe Wiesenthal noted in his Thursday column that “overall, the ‘banking system’ may be sound and resilient, but there's clearly anxiety surrounding individual banks that hasn't gone away.”
PacWest sank over 50% in early trading and was halted multiple times because of volatility.
At the same time, Tennessee-based First Horizon Bank also fell 33% after the regional lender and TD Bank announced that they were terminating their merger agreement.
The banks jointly said that the move was because of uncertainty around when (not if) TD would receive regulatory approval for the deal and was not related to First Horizon.
Other notable declines included a drop of 38% for Western Alliance and 12% for Zions Bancorp. The SIPDER S&P Regional Banking ETF (KRE) was down more than 5%.
Western Alliance’s fall came despite the company advising Wednesday evening that deposits have grown since the end of March.
KBW CEO Tom Michaud said, “That hasn’t taken the heat off of the stock, or the bond prices. Investors are very nervous.
“And I think what they’re nervous about is the fact that Silicon Valley lost 75% of their deposits in 36 hours. There’s not a bank in the world that could really sustain that.”
First Republic Won’t be Last Bank to Fail
All this news comes less than a week after L.A.’s First Republic was seized by the FDIC (see last Friday’s blog) and sold at a big discount to the U.S.’ largest bank and five-time felon JPMorgan Chase.
First Republic, the nation’s third bank failure this year, had searched for weeks for a market solution to stabilize itself after massive, near $100 billion deposit withdrawals in the 1st quarter, but no help came, so regulators stepped in.
Many regional banks saw deposit outflows in March around the collapse of Silicon Valley Bank, raising questions about the stability of their funding and the value of some assets on their books that were not marked to market.
Anticipated regulatory changes have also clouded the long-term profit outlook for the group.
JPMorgan CEO Jamie Dimon and Fed Chair Jerome Powell separately expressed optimism that the initial wave of bank failures has passed.
But the drops in a broader array of financial stocks show that investors – and depositors – don’t necessarily agree.
And now, after these recent events, confidence in America’s financial system is slipping.
What, Me Worry?
According to a new Gallup poll, almost one-half of the populace is either “moderately” (29%) or “very” (19%) worried about the safety of their money parked in banks.
Interestingly, the level of concern expressed in the latest poll is similar to the findings Gallup found shortly after the collapse of Lehman Brothers in September 2008.
Wiesenthal also points to another sentence in the Fed's release that reads, "Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation."
And that, he says, “gets to the big macro takeaway” – namely, that while inflation “is still hot,” there’s now “a live possibility that the Fed has gotten to the end of the hiking cycle.”
In his post-meeting press conference on Wednesday, Powell claimed that no hike, or a pause, at the next meeting is a real possibility. He also said he was encouraged by the trajectory of the labor market:
Fewer job openings, lower wage growth, higher labor force participation –you know the gist.
As of the close of markets yesterday, the CME Group reports that about 80% of interest rate futures traders expect the Fed to keep rates steady at 5.00-5.25% at its next meeting in mid-June. The other 20% see a 25-basis point rate decline.
Let’s see what April’s jobs report brings and what kind of talk – and action – result.