By Medha Singh and Chibuike Oguh
(Reuters) -Shares of mid-sized U.S. lenders edged lower in volatile trading on Wednesday, giving back early gains despite reassurances by U.S. Federal Reserve Chair Jerome Powell that the country’s banking system remains resilient.
U.S. banks had two straight days of losses sparked by the collapse of First Republic Bank, the third bank to fail since March.
PacWest Bancorp shares fell 1.98%, a day after tumbling 28% to close at their lowest level on record.
Western Alliance Bank fell 4.4%, while Comerica dropped 4.4%. The KBW Regional Banking Index shed nearly 1% after gaining about 2% early. On Tuesday, the index closed at its lowest level since December 2020.
On Monday, regional bank stocks plunged after U.S. regulators announced that they seized First Republic Bank and sold off its assets to JPMorgan Chase & Co for $10.6 billion.
The quick transaction has attracted criticism from some market-watchers and progressive lawmakers who say the largest, riskiest banks should not be allowed to get any bigger.
On Wednesday, Powell said it was a “good policy” to deter big banks from doing major acquisitions, but added that JPMorgan’s deal to acquire First Republic Bank was an “exception” because its bid was the most attractive offer.
In a press conference after the Fed announced a much anticipated 25-basis hike in interest rates, Powell said the U.S. banking sector remained sound and resilient despite “strains” in March that led to tighter economic conditions.
The cost of insuring against further losses in regional U.S. bank stocks stood on Wednesday near a one-month high in options markets, Reuters reported.
The regional bank selloff indicates investor unease over their outlook, Brown Brothers Harriman analysts wrote in a note. “Because that outlook is still unknown, markets did what they always do in these situations and assumed the worst,” the analysts said.
The exposure of regional banks to the commercial real estate sector, particularly office buildings, has also sparked investor worries, given rising interest rates.
(Reporting by Medha Singh in Bengaluru, additional reporting by Niket Nishant and Chibuike Oguh; Editing by Dhanya Ann Thoppil, Sriraj Kalluvila, Deepa Babington and David Gregorio)
