PacWest ( PACW ) and Western Alliance ( WAL ) fell Tuesday as investors worried the worst was far from over for troubled regional banks.
A day after JPMorgan Chase ( JPM ) bought a majority stake in First Republic ( FRC ) in a deal designed to restore stability to the banking system after two months of turmoil, it fell more than 20% in morning trade.
Other regional banks also fell, including Zions ( ZION ), Comerica ( CMA ) and Key ( KEY ).
Following the March 10 and March 12 failures of Silicon Valley Bank and Signature Bank, financial institutions with First Republic include PacWest and Western Alliance.
Both lenders, such as First Republic, lost a significant amount of deposits in the first quarter as customers sought the higher yields offered by the security or money market funds of the big banks. PacWest lost 17% of its deposits and Western Alliance 11%, while First Republic lost 41%.
PacWest and Western Alliance both posted declines in a key measure of profitability, a sign that the regional banking business is becoming more challenging as financing costs and interest rates rise.
Several bank executives tried to argue on Monday that worries about the banking system should subside with the seizure and sale of First Republic, including JPMorgan CEO Jamie Dimon: “This part of the crisis is over,” he said.
Another big bank CEO, Citigroup (C)’s Jane Fraser, cited “a palpable sense of relief” during an interview with Yahoo Finance on Monday. He called First Republic “the last major uncertainty of the small few banks that don’t do a good job of asset liability management.”
A new point of pressure on these banks could be short sellers, who are betting that some lenders will fall in value. These investors made tidy profits on such bets on First Republic and Silicon Valley Bank.
“The deer are being chased by the lions here, and the lions are going to pounce on the others,” Dick Bowe, financial strategist at Odeon Capital Group, told Yahoo Finance on Monday, predicting more bank failures.
Investors are looking for banks with large portfolios of fixed-rate mortgages, lots of commercial real estate and a gap between the bank’s actual values and published values, he said.
He said people have earned huge amounts of money. “Those who put the SVP out of business, those who benefited from the signature fiasco, those who benefited from the First Republic slow die, they made a lot of money.
“They look around to find another target.”
Downward pressure on some bank stocks could lead to more deposit outflows from corporate clients, said Ryan Nash, managing director of regional banks at Goldman Sachs.
This “starts raising red flags, and corporate treasurers and CFOs say, ‘You know what, maybe I should think about diversifying,'” Nash added.
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