What happened
Western Alliance Bancorp (WAL 1.62%) was volatile on Monday as its stock price was up as much as 9.7% in the morning, but it finished the day down 6.8%. The stock was trading at about $29 per share at market close today, down about 50% year to date.
The major indexes all moved higher on Monday as the S&P 500 was up 35 points (0.9%), the Dow Jones Industrial Average gained 383 points (1.2%), and the Nasdaq Composite was up 45 points (0.4%) as of market close.
So what
Western Alliance Bancorp, like PacWest Bancorp, among others, struggled in the wake of the collapse of SVB Financial's (SIVB +0.00%) Silicon Valley Bank and Signature Bank (SBNY +0.00%) earlier this month. Many small, regional banks were caught up in the sell-off, particularly those, like Western Alliance, that cater to venture capital investors.
But Western Alliance bounced back Monday morning, in part, due to a favorable note from analysts at Bank of America (BAC +0.17%), who cited stabilizing deposit trends at the bank. However, the stock price tumbled as the day wore on, likely caught up in the First Republic Bank (FRC +0.00%) sell-off, after S&P downgraded the bank's credit today due to deposit outflows.
NYSE: WAL
Key Data Points
But Western Alliance's vote of confidence from BofA likely stemmed from an update the bank issued last Friday afternoon, which detailed its current capital strength. Bank leaders said the firm saw elevated net outflows after the failure of the two rival banks, primarily from its Technology & Innovation group. But the sharp outflows have dropped in recent days; deposit balance fluctuations are normalizing with significant inflows and new account openings. Currently, the bank has more than $20 billion in immediately available liquidity.
As of Dec. 31, the bank's common equity tier 1 (CET1) ratio was 9.3%. Unrealized losses on its held-to-maturity and available-for-sale investment portfolios totaled $1.1 billion, but even after adjusting for these losses, the CET1 ratio would be 7.9%, which remains well above the required regulatory minimum.
Now what
Insured deposits account for about 55% of the bank's total deposits, including deposits eligible for "pass-through" deposit insurance. The bank has a diversified deposit base, as deposits within the Technology and Innovation group, which was hit the hardest, account for less than 8% of total deposits, with a significant percentage of them tied to broader banking relationships, making them less prone to runoff.
"We have a long history of financial stability and responsible, cautious risk management. These sound fundamentals have served us well over the past week," said Kenneth Vecchione, president and CEO of the bank.
The valuation has come way down for Western Alliance as it has a price-to-earnings ratio of 3.3 and is trading below book value with a price-to-book ratio of 0.70. However, there is a lot of uncertainty in this space right now, so it makes sense to tread cautiously.
