Western Alliance (WAL) stock dropped as much as 17% on Wednesday after the Phoenix-based lender offered a preview of first-quarter results that didn’t satisfy investors who want more clarity on deposit outflows at regional banks.
Western Alliance in its release late Tuesday offered several new statistics about deposits, unrealized bond losses, liquidity, and its borrowings from the Federal Reserve.
The bank first highlighted its percentage of deposits covered by the Federal Deposit Insurance Corporation now stands at 68%, “significantly higher” than at the end of 2022.
That means Western Alliance is now less dependent on funding from uninsured depositors who are considered a greater flight risk during periods of uncertainty.
Wednesday’s market reaction highlights the challenges facing regional banks as they prepare to release earnings reports later this month following a month of chaos for the industry.
Some banks, such as Los Angeles-based PacWest (PACW) and San Francisco-based First Republic (FRC), have released certain information early in an attempt to demonstrate stability ahead of first quarter earnings, but such efforts are not always rewarded by nervous investors looking for new signs of stress.
Analysts and stockholders focused instead on what Western Alliance didn’t disclose: exactly how many deposits left the bank during the panic triggered by the failures of Silicon Valley Bank and Signature Bank in early March.
Wedbush analysts said in a new note Wednesday they forecast Western Alliance’s deposits dropped 13%-17% in the first quarter, or $7 billion-$9 billion, a larger outflow than Wedbush previously estimated. The firm also said an improvement in the percentage of insured deposits at Western Alliance could be due to outflows from uninsured depositors as opposed to new accounts.
Western Alliance was one of many regional banks that came under intense scrutiny following the seizures of Silicon Valley Bank and Signature Bank on March 10 and March 12, the second- and third-largest bank failures in U.S. history. Western Alliance was the nation’s 40th-largest bank at the end of 2022 with nearly $68 billion in assets. Shares of the bank have been roughly cut in half since the start of the year.
Small and mid-sized banks across the U.S. lost $196 billion in deposits during the week ending March 15, according to updated data released by the Federal Reserve last Friday.
Outflows stabilized the following week as regulators promised to protect all depositors and help regional banks access liquidity if needed. The 25 biggest banks, though, lost $90 billion in the week ending March 22.
Western Alliance offered up other points in its release Tuesday designed to calm investors.
The bank said it no longer had any borrowings outstanding from the Fed’s discount window at the end of the first quarter, and unrealized losses on its bond portfolios had improved “primarily due to lower interest rates.”
The value of long-term bonds held by many banks fell over the past year due to the Fed’s aggressive campaign to bring down inflation by hiking rates.
The bank also said its “immediately available liquidity” exceeded uninsured deposits. A lack of liquidity in part sank Silicon Valley Bank after its depositors pulled $42 billion in a single day.
“Western Alliance’s uniquely flexible, diversified business model positioned us to weather the liquidity tightness that enveloped the industry over the past month,” said Western Alliance CEO Kenneth Vecchione.
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Source: https://finance.yahoo.com/news/western-alliance-stock-plunges-after-q1-update-lacks-detail-on-deposit-outflows-160554788.html