US bank stocks plummet as confidence crisis hits

Amid a lingering crisis of confidence in the US banking industry, the shares of American banks have sharply declined. Worried about a series of bank failures, investors are now abandoning smaller lenders that they perceive as susceptible to collapse.

PacWest, headquartered in California, experienced a sharp 50% drop in its shares, while Western Alliance saw a nearly 40% decline in its stock price.

An official from the US Treasury Department stated that they are keeping a close watch on the situation. They added that the banking system has ample liquidity and that the flow of deposits remains steady.

Since March, the shares of local banks have taken a beating due to the collapse of Silicon Valley Bank, which was the 16th biggest lender in the US at the time. This incident raised concerns about how the banking sector will cope with the sharp increase in interest rates that began last year.

The sell-off of banking shares by investors and the quick transfer of funds by customers to larger, more secure banks led to the downfall of Signature Bank a few days later, followed by First Republic this week.

Except for the downfall of Washington Mutual during the financial crisis of 2008, the recent collapses were the largest in US history.

Investors are now bracing themselves for potential difficulties at other banks, as these institutions face pressure to increase interest rates on customer deposits in response to the rise in interest rates. Additionally, the higher rates are negatively impacting the market value of certain assets, which are yielding lower rates of return.

The pace of bank share sell-offs accelerated this week, following the seizure of First Republic by regulators and its subsequent acquisition by JPMorgan Chase, the largest bank in the US.

On Wednesday, PacWest made an announcement after experiencing a significant two-thirds decline in its shares throughout the week. The company stated that it had received interest from potential investors and buyers and was currently considering its options.

Although Western Alliance, based in Arizona, was also facing a decline in its shares, it refuted a report by the Financial Times on Thursday that claimed it was contemplating a sale. The company rejected the report as “categorically false in all respects.”

As a result of the upheaval, Toronto-Dominion Bank of Canada cancelled its plans to acquire First Horizon, a Tennessee-based bank, for $13.4 billion (£10.7 billion), which caused its shares to drop by approximately 33%.

Toronto-Dominion Bank had faced investor pressure to abandon the acquisition over concerns about the stability of the financial industry. First Horizon, on the other hand, cited regulatory approval issues as the reason for terminating the deal.

According to a tweet by billionaire investor Bill Ackman, “It takes decades to build confidence in a financial institution, but it can be shattered within days. As each domino falls, the next weakest bank begins to stumble.”

In addition to the increase in interest rates, mid-sized US banks like PacWest have been facing difficulties due to investor concerns regarding their loans to venture capitalists, who have made substantial investments in technology firms.

The technology industry has been experiencing a decrease in demand, high inflation, and an increase in interest rates, resulting in job cuts by various firms.

The series of bank failures has prompted US lawmakers to prioritize the issue. On Thursday, the Senate Committee on Banking, Housing, and Urban Affairs will convene a hearing to discuss “the accountability of executives in the wake of recent banking failures.”

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By Ryan

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