PacWest Wins in Busy Trade for U.S. Regional Banks

May 9 (Reuters) – PacWest Bancorp ( PACW.O ) shares regained earlier session losses on Tuesday as investor uncertainty about the financial health of U.S. regional banks supported bearish trading in their shares.

PacWest rose 2.3% after the Los Angeles-based lender decided to cut its quarterly dividend in an effort to boost its cash flow.

Shares of the bank have rallied more than 92% in the last three sessions after being sent to record lows last week.

“We believe PacWest and other banks are not trading in line with their fundamentals,” said Piper Sandler analyst Matthew Clark, who currently has an “overweight” rating on PacWest shares.

Shares of other regional banks also declined. Western Alliance ( WAL.N ) fell 1.4%, Valley National Bancorp ( VLY.O ) lost 1.5%, First Horizon Corp ( FHN.N ) fell 1.3%, and Synovus Financial Corp ( SNV.N ) fell nearly 1%. But Comerica Inc ( CMA.N ) and Zion Bancorp ( ZION.O ) rose 0.39% and 0.66%, respectively.

The KBW Regional Banking Index (.KRX) fell 0.72% on Tuesday and hit its lowest point in 30-months last week after First Republic Bank’s collapse and PacWest’s decision to explore strategic options.

“Volatility is back. We hoped the (First Republic) resolution would bring some calm and cool heads back to the market. Instead, it only seemed to re-intensify the wild price swings,” Piper Chandler analysts, led by Scott Seifers, wrote in a note to investors.

New York Federal Reserve President John Williams said on Tuesday that the US banking system remains solid and resilient, that the acute phase of the current crisis is over and that only a few banks are in trouble.

Williams said the Fed is ending the cycle of rate hikes as inflationary pressures have eased somewhat and tighter financial conditions tied to banking sector problems are expected to help further cool the economy.

PacWest and Western Alliance, at the center of the recent selloff at regional banks, saw steepest declines in deposits in the first quarter after First Republic Bank, according to S&P Global Market Intelligence data.

Analysts are calling on the Federal Deposit Insurance Corp (FDIC), which currently insures up to $250,000 per individual deposit per bank, to raise its deposit limits to end the current crisis with regional banks. The FDIC released a statement last week saying it saw merit in increasing the holdback for business accounts.

“The FDIC needs to raise its limits because that’s what will build confidence in people and prevent them from moving their money to the big banks,” said Michael Ashley Shulman, chief investment officer at Running Point Capital in California. “Otherwise the smaller banks will be destroyed.”

Reporting by Medha Singh in Bangalore, additional reporting by Bansari Mayur Kamdar; Editing by Arun Koiyur

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