banking
The stock market is rising after the recovery, although investors are still taking big losses
US regional bank shares rallied on Friday, although concerns over the health of the sector caused investors to suffer heavy losses this week.
Defeat began in March with the collapse of Silicon Valley Bank, followed by the fall of Signature Bank and then the First Republic last weekend. Some regional lenders are struggling to cope with sharp hikes in interest rates enacted by central banks in an attempt to tame inflation.
On Friday morning, PacWest Shares rose 49%, while Western Alliance rose 31%, Zion 15% and First Horizon 5%. However, all four banks are still trading significantly lower than a week ago, with PacWest’s shares worth half what they were last Friday, erasing more than $600 million from its market cap. Western Alliance is trading down 35% after shedding $1.4 billion in value.
Nonetheless, the partial recovery boosted US stock markets and oil prices also rose.
The crisis threatened to deepen as hedge fund betting shares continue to fall.
Friday’s rally came after Portal reported that US officials are looking into whether “market manipulation” caused the recent volatility.
The White House has vowed to monitor “short selling pressures on healthy banks,” and the American Bankers Association has asked federal regulators to investigate a spate of substantial short selling of bank stocks.
markets.com’s Neil Wilson said regulators may consider introducing a ban on short selling to “buy time” amid the sell-off. He said: “There may have to be a ‘whatever it takes’ line in the sand – the US authorities clearly haven’t – a ban on short selling of bank stocks may be part of that. Remember that this bank stress is only because you are portraying the wrong side of interest rates. We haven’t even had a recession or a full credit cycle.”
Jaret Seiberg, an analyst at investment bank TD Cowen, compared the turmoil to the short selling wreaking havoc on shares of video game retailer GameStop in 2021: “We think banks are having their GameStop-like moment where social Media reinforce non-traditional approaches to assessing solvency. This creates a self-fulfilling prophecy that puts stock prices under pressure, which then leads to more questions.”
Russ Mold, Investment Director at AJ Bell said: “Markets will always look for the weakest link and then attack it when it suits them. It can be a self-fulfilling prophecy. Stocks are falling, people are withdrawing and hedge funds are piling up.”
Mold said UK banks were looking isolated from the crisis for the time being, but added there were lingering concerns. He said: “British banks are looking over their shoulder at what is happening in the US. At the moment, the risk for UK banks appears extremely limited. The US has thousands of regional banks that are not stress tested.”
On Thursday, Western Alliance collapsed after vigorously denying a Financial Times report that it was considering a possible sale.
PacWest had tried to calm markets on Wednesday and said it was in talks with several potential investors after its shares fell 60%. However, traders were not reassured and the stock continued to fall on Thursday.
Earlier this week, JP Morgan chief Jamie Dimon downplayed the risk of a widening banking crisis after he bought out First Republic.
The pound hit an 11-month high against the dollar at $1.263 on Friday morning as fears over the outlook for the US economy gripped markets. However, strong US jobs numbers erased some of those gains.
The dollar’s fall against the pound came after the US Federal Reserve voted to hike interest rates to a 16-year high on Wednesday, despite fears over the impact of the banking crisis on the broader economy.
In the UK, the Bank of England is expected to hike interest rates to 4.5% next Thursday, with markets now pricing in another hike before the end of the year.
{{#Ticker}}
{{top left}}
{{bottom left}}
{{top right}}
{{bottom right}}
{{#goalExceededMarkerPercentage}}{{/goalExceededMarkerPercentage}}{{/ticker}}
{{Headline}}
{{#paragraphs}}
{{.}}
{{/paragraphs}}{{highlightedText}}
{{#choiceCards}}{{/choiceCards}}We will contact you to remind you to contribute. Look for a message in your inbox in . If you have any questions about the post, please contact us.