After the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank, peace has not yet returned to the American financial sector. Investors punished several regional banks on the stock exchange on Thursday. “You just see a complete distrust in the entire regional banking sector,” says Justin Blekemolen, investment specialist at Lynx.
For example, Western Alliance and PacWest prices decreased by 38.5% and 50.6%, respectively. The price of First Horizon bank also fell sharply by 33.2%. Financial Times reports, in particular, depressed prices. That newspaper wrote that Western Alliance is considering putting the bank up for sale. PacWest is also considering a possible sale. The bank itself said it was in talks with various investors and was investigating ‘strategic options’.
According to Blekemolen Lynx, peace has not yet returned as investor confidence has evaporated. He also points to Jerome Powell’s lease decision. Powell raised interest rates and said it wasn’t that bad. The next day, the prices were significantly lower. This has to do with the loss of confidence among investors. Then they sell their shares en masse.”
“If such a bank indicates that it needs money, it obviously doesn’t sound right”
The panic among investors will later also affect bank customers, predicts Blekemolen. ‘It’s a self-fulfilling prophecy. Because with the fall in price, customers panic again, who then withdraw money from the bank, so the end is lost,” says the investment specialist.
High interest rates
The fact that the pressure on regional banks is so great is mainly due to the rapid increase in interest rates. “As a result, their bond values came under pressure, meaning that a number of banks could no longer meet their capital requirements and had to raise funds. But even that is difficult with current high interest rates. , which created panic. And if such a bank indicates that it needs money, it doesn’t sound good, of course.”
There is therefore the possibility that a number of banks will fail, predicts Blekemolen. If we look specifically at the banks that are under pressure, the decline of the Western Alliance is quite surprising. After all, they indicated Wednesday evening that their deposits had grown.” He blames the decline in that bank’s share price in particular on a Financial Times report that spoke of a possible sale. “They themselves have indicated that this is not true, but it indicates how investors feel about it and that they are nervous.”
Acquisition cancelled
First Horizon’s decline is not directly related to the current turmoil in the industry. “This was already happening before the banking crisis. There, the deposits were withdrawn by regional banks. It was a smaller amount at first, fifteen percent was removed between 2021 and 2022, but that’s not a big deal. But they were being acquired by another major American bank.’ However, that acquisition was canceled because financial regulator approvals were not forthcoming.
In the meantime, however, a trend has arisen, notes the investment specialist. “You just see a complete distrust of the entire regional banking sector.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
