PacWest, Western Alliance lead slide in regional bank stocks

(Reuters) – Shares of regional lenders PacWest Bancorp and Western Alliance resumed their slide in premarket trading on Tuesday as investors feared the ongoing banking crisis could deepen.

PacWest dropped 13.6%, 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 had last week touched 30-month lows after the collapse of First Republic Bank and PacWest’s decision to exploring strategic options.

PacWest and Western Alliance, which have been at the heart of the banking selloff, 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, a Federal Reserve survey, among the first measures of sentiment across the sector since the recent run of bank failures, showed that firms of all sizes were showing less demand for credit than three months ago.

The tightening credit conditions for U.S. business and households in the first quarter 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 5.5%, while First Horizon Corp and Zion Bancorp shed 4.4% and 2.9%, respectively, with Arfstrom noting that the pullback in banks shares overall have made their valuations attractive.

(Reporting by Medha Singh in Bengaluru, additional reporting by Bansari Mayur Kamdar; Editing by Arun Koyyur)