Federal Reserve Chair Jerome Powell announced Wednesday that the period of bank failures that have rattled markets and the economy has come to an end. Despite this announcement, shares in several banks continued to struggle, with PacWest down 56%, Western Alliance Bank down 30%, Metropolitan Bank down 20%. The California lender PacWest saw its shares plummet as much as 60% in after-hours trading due to fears of a US banking crisis.
The bank is currently in talks with several potential investors and had total deposits of $48.8bn (£22.2bn) as of Tuesday. Other less well-known regional banks were also hit, with shares in Comerica and Zions Bancorporation falling by about 10%. This sell-off occurred despite reassurances from US Federal Reserve chair Jerome Powell that the country’s banking system remained “sound and resilient” after the central bank voted to raise interest rates to a 16-year high.
Bill Ackman, chief executive of New York hedge fund Pershing Square, warned that the US "regional banking system is at risk." With PacWest's stock plummeting more than 35 percent in premarket trading on Thursday morning following confirmation by Los Angeles-based lender exploring a sale.
Shares in Western Alliance, Comerica and Zions Bancorp were also negatively impacted even though Fed signaled they may be done raising interest rates for now. Reports regarding a potential sale for PacWest led some critics questioning First Republic’s monthlong search for help amidst their struggles.
In contrast to these financial institutions' troubles, Shell reported better-than-expected earnings thanks to lower costs and strong trading results offsetting lower oil prices.
PacWest Bancorp experienced further decline when it announced exploration into strategic asset sales including moving a $2.7 billion lender finance portfolio marked "held for sale" while considering other options. This news coincided with the Federal Reserve's announcement of a 0.25 percent increase in its core interest rate, marking the 10th rate hike in 14 months.
Rising rates have put significant pressure on banking sectors around the world, contributing to failures like those seen at Silicon Valley Bank and Signature Bank earlier this year. Fed Chairman Jerome H. Powell acknowledged that it remains unclear how these effects will impact monetary policy moving forward.
PacWest Bancorp, First Horizon Corp., and First Horizon have all contributed to concerns surrounding US midsized lenders following recent collapses within multiple firms. The SPDR S&P Regional Banking ETF saw a decline of up to 5.9%, continuing this week's downward trend.
Prominent investors such as hedge fund billionaire Bill Ackman warn that stresses on the banking system are far from over and encourage policymakers to do more for smaller lenders suffering from raised interest rates by the Federal Reserve. In response, PacWest stated that their core deposits had risen since March and experienced no out-of-the-ordinary deposit flows following reports about First Republic Bank struggles.
Other US lenders also faced setbacks with Wells Fargo & Co slipping by 1.6% while Goldman Sachs Group Inc suffered a drop of 0.6%.