PacWest Bancorp, Regional Bank Stocks Fall Hard

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Stocks of regional banks plunged on Tuesday, a sign that traders remain unsettled about their prospects, but it was hard to find new reasons for the selloff.

The decline came a day after

JPMorgan Chase

(ticker: JPM) agreed to take over

First Republic Bank

(FRC).

At least one bank analyst said it was a buying opportunity. “[W]e would be buyers of the weakness today,” wrote Jon Arfstrom at RBC Capital Markets. “[T]he large declines across our universe today do not reflect the strong and healthy balance sheets and minimal disruption in deposits in recent months.”

In Tuesday trading, shares of Beverly Hills-based

PacWest Bancorp

(ticker: PACW) closed down 28% at $6.50.

Western Alliance Bancorporation

(WAL), in Phoenix, was down 15%, to $30.90. Dallas-based

Comerica

(CMA) slid 12%, to $37.20. And after a big drop that started Monday, the New York area lender

Valley National Bancorp

(VLY) was down 19% over the two days to $7.30.

The banks disseminated no statements about the moves in their stocks and didn’t immediately return calls from Barron’s. Commentary in the financial media blamed worries about funding costs, ahead of this week’s expected interest-rate increase by the Federal Reserve, and concern about banks’ exposure to commercial real estate.

D.A. Davidson banking analyst Gary Tenner said he thought that investors may be disappointed that bank regulators and Congress haven’t offered to shield mid-sized banks from higher costs for deposit insurance. Costs are likely to rise as a result of losses the Federal Deposit Insurance Corp. has suffered in dealing with the recent series of failures of regional banks, and smaller banks have asked that big banks be required to shoulder that expense.

“There’s no news,” Tenner told Barron’s. “This is simply because there were no changes to the deposit insurance. The hope was that something would come with First Republic, but without knowing what regulators will do and what Congress will do, there’s nothing to stem the market pressure on the stocks. The concern is that it begets deposit pressure and becomes a spiraling effect.”

Two of the banks sinking on Tuesday, Valley National and PacWest, were featured in a Barron’s examination of lenders with concentrated loans in commercial real estate.

But the RBC analyst said conversations with bank executives and investors turned up no new information or emerging concerns.

Arfstrom wrote that Comerica, PacWest and Western Alliance had done good jobs of strengthening their balance sheets in the March quarter, and had stabilized their deposits. As a percentage of loans, nonperforming assets had only ticked up a few basis points—or hundredths of a percent—since December, while remaining below 0.5% at all three banks. Deposits had fallen some 10% to 15% at the three, but RBC estimated that the banks’ liquidity remained well above their uninsured deposits—those of more than $250,000, which aren’t backed by the FDIC.

The analyst continues to rate Comerica, PacWest, and Western Alliance at Outperform.

“We continue to believe the companies that have favorable growth outlooks and attractive deposit bases are better positioned to navigate a more difficult funding environment,” he wrote.

The SPDR S&P Regional Banking exchange-traded fund (KRE) was down 6% while the S&P 500 was off 1.2%.

Write to Bill Alpert at [email protected]