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Friday, September 29, 2023

Bank stocks drop again as PacWest free fall ‘feeds that narrative’ of weakness despite a ‘fundamentally sound’ business

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Western Alliance Bancorp, PacWest Bancorp and First Horizon Corp. posted steep losses Thursday as clouds hung over the banking sector a day after the U.S. Federal Reserve hiked interest rates by a quarter-point.

First Horizon

dropped 36% after it said its merger with Toronto-Dominion Bank


would not close, some 15 months after the deal was announced. Jefferies analyst Casey Haire said First Horizon’s standalone stock valuation without the merger is about $11 to $13 a share, 20% below where the stock was trading on Wednesday.

Trading in Western Alliance Bancorp.’s

stock was halted after the bank issued a strong denial of a Financial Times report that it is exploring a sale. Earlier, the stock fell 39% to $18.05, below its 2005 initial public offering price of $22 a share.

“There is not a single element of the article that is true,” Western Alliance said.

Meanwhile, Western Alliance said late Wednesday that it hasn’t experienced unusual deposit flows following the sale of First Republic on Monday. Its deposits increased $1.2 billion to $47.6 billion between March 31 and May 3, the bank said.

The KBW Nasdaq Bank Index

dropped 3.4%, the SPDR S&P Regional Banking exchange-traded fund

moved lower by 4.9% and the Financial Select SPDR ETF

fell 1.5% Thursday.


shares dropped another 48% to bring its year-to-date loss to about 85% after Bloomberg reported that the bank is considering a potential sale.

PacWest said it had explored strategic asset sales, including its $2.7 billion lender-finance loan portfolio, and confirmed that it has been approached by “several potential partners and investors,” with discussions now ongoing.

PacWest also said it has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news. Its core customer deposits have increased since March 31, with deposits totaling $28 billion as of May. Insured deposits grew to 75% from 71% at the end of the first quarter.

Read more: Why First Republic’s rescue isn’t arresting a selloff in U.S. regional-bank stocks

PacWest said it “will continue to evaluate all options to maximize shareholder value.”

Citi analyst Keith Horowitz said in a research note that the weakness in PacWest’s stock comes amid investor concerns tied to mark-to-market losses on the asset side of the balance sheet, combined with deposit flight due to reliance of banks on uninsured deposits, which leads to concerns about solvency.

“The recent [PacWest] news only feeds that narrative, and many investors for now are waiting this one out, which has created an air pocket for the stocks,” Horowitz said. “This creates a near-term challenge, but we believe the business models for our universe are fundamentally sound and we believe this selloff has created very attractive long-term opportunities.”

D.A. Davidson analyst Gary Tenner downgraded PacWest to neutral from buy and cut the stock’s price target to $3 from $19 because the stock continues to trade “untethered from fundamentals,” he said.

PacWest’s deposit stabilization, planned asset sales and its path back to a Common Equity Tier 1, or CET1, ratio of 10%-plus could be seen as positive catalysts, but the stock continues to slide, he said.

Barbara Kollmeyer, Ciara Linnane and Emily Bary contributed to this report.


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