Investors Remain Wary of Regional Banks After First Republic Sale

Investors remain concerned about the future of regional banks.

After regulators seized the struggling First Republic Bank and auctioned it off Sunday (April 30) and JPMorgan Chase agreed to acquire it on Monday (May 1), shares of other regional banks dropped on Tuesday (May 2), Reuters reported.

Among those whose shares dropped were PacWest Bancorp, down 35%; Western Alliance Bank, down 20%; Comerica, down 11%; KeyCorp, down 10%; and Valley National Bankcorp, down 6%, according to the report.

In addition, the KBW Regional Banking Index dipped 5.2% to its lowest level since December 2020, the report said.

The troubles at First Republic added to investors’ concerns about regional banks that had been those seen at Silicon Valley Bank and Signature Bank in March, per the report.

Analysts told Reuters that other banks are vulnerable to the same kind of “confidence crisis” that struck First Republic, that the market tends to focus on “the next weakest link” and that the Federal Reserve should address the crisis among regional banks when it meets on Wednesday (May 3).

As PYMNTS reported Tuesday, the measures taken by regulators through the past several weeks may have done nothing to stem the flow of deposits toward the biggest banks, especially from the business banking accounts and individual, wealthier households that tend to have deposit accounts above $250,000.

The takeaway from Monday is that JPMorgan is the savior, and that presents a fundamental problem, QED Investors Partner Amias Gerety told PYMNTS’ Karen Webster in an interview posted Tuesday.

“The big getting bigger — well, that’s the real policy question of the day,” Gerety said, adding that the diversity of the banking system is a huge strength.

Citizens Financial Group CEO Bruce Van Saun told Bloomberg’s Baystate Business Hour Podcast on April 25 that regional banks can compete with the bigger banks and that Citizens “is fine” at its current scale and size.

“We go up against the megabanks every day in these markets like Boston,” Van Saun said at the time. “We can win jump balls on deals against JPMorgan and BofA [Bank of America] and we do it on a consistent basis.”