What happened
Bank stocks are once again getting pounded today in what has turned into a difficult week for the sector that has renewed fears from the banking crisis.
Shares of Western Alliance Bancorp (WAL -1.75%) traded more than 29% lower as of 1:52 p.m. ET today. Earlier today, shares had been down as much as 60% briefly. Meanwhile, shares of super-regional banks U.S. Bancorp (USB 0.90%) and KeyCorp (KEY 0.07%) traded 5% and nearly 8% lower, respectively.
So what
Bank stocks struggled yesterday after the Federal Reserve went forward with its widely expected quarter-point interest rate hike. But things got a lot worse when media reports started swirling after the market closed yesterday that PacWest Bancorp (PACW) was exploring a sale. Shares of PacWest were down more than 45%, as of this writing, and really seemed to be hitting the entire bank sector. The SPDR S&P Regional Banking ETF (KRE -0.49%) had fallen more than 5% as of this writing.
Image source: Getty Images.
This morning, PacWest provided an update, saying that it had not seen any abnormal deposit outflows but had recently been approached by potential partners and investors and were considering various options to maximize shareholder value. This report has done little to stem the sell-off.
PacWest and Western Alliance are two bank stocks that have declined significantly this year because investors spotted some similarities between these two and SVB Financial's Silicon Valley Bank, which has since collapsed.
Then earlier today, the Financial Times reported that Western Alliance is also reportedly exploring a sale, citing anonymous sources. But executives at the bank quickly denied this report, calling it "categorically false in all respects," and also said that "Western Alliance is not exploring a sale, nor has it hired an advisor to explore strategic options."
The various reports suggesting potential sales have triggered a sectorwide sell-off in a week that investors might have expected the banking sector to rally. JPMorgan Chase acquired most of the assets of First Republic on Monday, which had been seized by regulators, putting an end to one bank under pressure. The Fed also raised interest rates by a quarter-point and really did not deviate from what the market had expected it to do.
But some like Katie Koch, CEO of asset management firm TCW Group, think investors may have gotten a little ahead of themselves in thinking that the banking crisis is over. She said to Yahoo! Finance:
[Regional banks] have this dual pressure from both deposit outflow and their commercial real estate exposure, and that's going to put pressure on those banks. It's going to put pressure on their ability to extend credit, which in turn is going to put pressure on the economy and jobs. We are quite worried about that, and that really underscores the base view as to why we're in the more bearish camp.
Now what
I remain somewhat surprised at all the selling action this week in the sector, as I had believed that a resolution of First Republic and no real deviation from the Fed's path of raising interest rates would have solidified things.
I also continue to wonder why investors are so suddenly so worried about banks' commercial real estate exposure, as it has been an ongoing concern for quite a while now. But given what just happened with the banking crisis, I can understand why the market is rattled and why investors are looking for further signs of stabilization.
Ultimately, while the sector is likely to face struggles in the near term, I believe many banks are trading at attractive entry points long term, including these three. Western Alliance is a higher risk-reward play that will be more volatile, so it's not for the wary, but I do think the bank can navigate this difficult time and eventually rebound.
