(Reuters) -Shares of major U.S. regional lenders were mostly lower on Friday, underscoring continued investor uncertainty about the financial stability of mid-sized banks.
Comerica Inc, Fifth Third Bancorp and KeyCorp fell 3.7%, 1.1% and nearly 2%, respectively. PacWest Bancorp, which lost 23% on Thursday after reporting a decline in deposits, dropped 2.7%. Zions Bancorp shares were down 2.4%.
All three major Wall Street indexes, including the S&P 500 , also traded lower after data showed U.S. consumer sentiment slumped to a six-month low.
“More U.S. banks have been in the market crosshairs … despite many of the pressured banks having generally solid credit fundamentals,” DBRS Morningstar analysts said, adding that investor fears would likely persist until regulators extended deposit insurance or barred investors from betting against stocks, a practice known as short selling.
Persistent investor worries about instability in the regional bank sector, worsened by the collapse of First Republic Bank earlier in May, have pushed down the KBW Regional Banking index nearly 14% so far this month. The index was down nearly 0.5% on Friday.
Markets are also eyeing the debate over the U.S. debt ceiling, as President Joe Biden’s Democrats and Republicans, who control the House of Representatives, remain at odds over raising the country’s borrowing cap.
The U.S. faces a “significant risk” of defaulting on payment obligations within the first two weeks of June without a debt ceiling increase, the Congressional Budget Office said on Friday, underscoring the urgency of resolving the standoff.
U.S. Treasury Secretary Janet Yellen will discuss the impasse next week with board members of the Bank Policy Institute – which includes JPMorgan Chase CEO Jamie Dimon and Citigroup CEO Jane Fraser – a Treasury official told Reuters.
“Markets will focus on banking fears, debt ceiling concerns,” among other economic indicators, TD Securities analysts wrote in an investor note.
The Federal Deposit Insurance Corporation said on Thursday it will replenish its deposit insurance fund by imposing a special assessment fee of 0.125% on uninsured deposits of lenders in excess of $5 billion, although analysts said the levy shouldn’t be a worry for banks.
“While the special assessment is meaningful in terms of dollars overall to the industry, it is not as meaningful on a per-bank basis,” Raymond James analysts wrote in a note.
On the up side, shares of Charles Schwab traded 2.5% higher after the brokerage firm said that so far in May, it had seen fewer clients move their funds away from its accounts to other high-yield products. The pace of such “cash realignment” has slowed for three straight months and will abate during 2023, it said.
(Reporting by Niket Nishant in Bengaluru and Chibuike Oguh in New York; Editing by Michelle Price, Devika Syamnath and Leslie Adler)
