(Reuters) -Shares of PacWest Bancorp looked set to lead declines in U.S. regional lenders at market open on Tuesday as investors feared the ongoing banking crisis could deepen.
PacWest dropped 6.5% in premarket trading, a day after the Los Angeles-based lender’s decision to cut its quarterly dividend failed to stem worries about its financial stability. The KBW Regional Banking Index hit a 30-month low last week after the collapse of First Republic Bank and PacWest’s decision to explore strategic options. PacWest and Western Alliance, which have been at the heart of the sell-off in regional banks, saw the steepest decline in deposits in the first quarter after First Republic, according to S&P Global Market Intelligence data. Adding to the banking woes, U.S. firms of all sizes were showing less demand for credit than three months ago, according to a Federal Reserve survey, among the first measures of sentiment across the sector since the recent run of bank failures. The tightening credit conditions for U.S. business and households in the first quarter, however, was likely due to the impact of higher interest rates than the cliff-like decline in credit some feared after the March collapse of Silicon Valley Bank, Fed’s quarterly survey showed. “We do expect some credit erosion as the year progresses, but we also believe the banks have visibility into the outlook and can manage any credit stresses that emerge,” said Jon Arfstrom, analyst at RBC Capital Markets in a note. Western Alliance dropped 1.5%, while First Horizon Corp and Zion Bancorp dipped 0.1% and 0.3%, respectively, with Arfstrom noting that the pullback in banks shares overall have made their valuations attractive. Wall Street executives and bank analysts last week called on regulators to quickly provide more protection for bank deposits and consider other backstops, arguing only an intervention could stop the crisis.
“While the overall banking system remains sound and regulators have learned from past crises that swift action is needed when challenges arise, the market still can’t decide whether we’re in the backstretch or the homestretch when it comes to the recent tremors,” Raymond James chief investment officer Larry Adam said.
(Reporting by Medha Singh in Bengaluru, additional reporting by Bansari Mayur Kamdar; Editing by Arun Koyyur and Saumyadeb Chakrabarty)