Treasury Secretary Janet Yellen testifies during a Senate Appropriations Subcommittee on Financial Services and General Government hearing, March 22, 2023. (AP Photo/Amanda Andrade-Rhoades)
The third major bank failure this year sent regional bank stock prices falling sharply Tuesday after JPMorgan Chase & Co. said early Monday it had bought First Republic Bank from out of U.S. government receivership in hopes of stabilizing the U.S. banking system.
Share prices of regional lender PacWest Bancorp were down 33 percent on Tuesday morning and stock trading was halted several times due to volatility. The Los Angeles-based bank has 67 full-service branches in California, one in Denver and one in Durham. Pacific Western Bank is a subsidiary of PacWest Bancorp.
Government regulators seized the troubled regional bank First Republic over the weekend after private rescue efforts failed and sold it to JPMorgan. First Republic is the third large regional bank to fail this year after Silicon Valley Bank collapsed on March 10, followed days later by Signature Bank.
“Hopefully this helps stabilize everything,” JPMorgan CEO Jamie Dimon said Monday on a call with journalists, Bloomberg reported. Regional banks reporting first-quarter results in recent weeks “actually had some pretty good results,” Dimon said. “The American banking system is extraordinarily sound.”
PacWest wasn’t the only regional bank to see its share prices plummet Tuesday. Western Alliance Bancorp was down 25.5 percent and Metropolitan Bank Holding Corp. was down 24 percent. Shares of Bank of Hawaii slid 10 percent and Zions fell 12 percent.
Recent regional bank failures will have a negative impact on future earnings for the banking industry, said CFRA analyst Alexander Yokum.
“All the costs of bank failures will be borne by banks and not taxpayers, although we expect banks to indirectly pass along many of these costs to customers through higher fees and higher interest rates on loans,” Yokum said, according to a Market Watch report.
PacWest and other regional banks’ falling shares on Tuesday are a sign that fears about the health of regional banks are still running high after First Republic was seized and sold to JPMorgan, Wall Street Journal reported.
PacWest and Western Alliance were among the hardest hit banks. Both reported double-digit quarterly declines in deposits at the end of March, but reported that flows had since stabilized.
Last week, PacWest reported first-quarter losses and said it would explore “strategic asset sales” to increase liquidity.
More Federal Reserve rate hikes are a potential problem for regional banks, NBC reported. Higher interest rates will make it more expensive for banks to hold on to their deposits while also lowering the market value of the long-dated bonds and loans on their books.
Concern about the market value of those assets helped trigger the run on Silicon Valley Bank in March.
The Fed is expected to raise its benchmark rate by 0.25 percentage points on Wednesday, May 3.
