PacWest, Western Alliance stocks sink on regional bank shakeups ahead of Fed decision

The Yahoo Finance Live team discusses the decline of regional bank stocks following JPMorgan's acquisition of First Republic Bank, market sentiment, the outlook for investors amid the U.S. banking crisis, and the Fed's upcoming decision on a potential rate hike.

Video transcript

SEANA SMITH: Let's get you up to speed on the biggest movers of the day and that's regional banks. Fear in this sector is not going away as shares of Pac West also Western Alliance tumble. You're looking at losses of 25% for Pac West Western Alliance off just about 16% of this drop, coming the day after JPMorgan Chase did reach a deal to buy First Republic Bank's assets in an attempt to restore stability in the banking system.

But investors do not seem convinced. When you take a look at the action today, Akiko, I think it's clear that investors are trying to figure out who could potentially be next. And this comes, remember, just a day after we heard from a number of bank CEOs, including the CEO of Citi, Jane Fraser, right here on our program yesterday saying she is very confident in the US banking system and that it's really the envy of the world.

AKIKO FUJITA: Yeah, you know, Seana I was going to say what a difference a day makes, right? Yesterday we were talking about the calm sort of being restored in the markets. It wasn't just Jane Fraser, we heard from JPMorgan's CEO Jamie Dimon who came out and said, look, everybody needs to take a breath. And that the initial phase of this banking crisis was over.

The market certainly not convinced, as you point out, looking at these two regional banks. And really not a whole lot of news coming on the back of that. It really is about concerns about the deposits, whether there's going to be a further withdrawal here. Worth noting, by the way, both of these companies posted earnings results in April that indicated that their deposits had stabilized. In fact, Pac West said deposits began rebounding in late March. That didn't seem to matter today. And by the way, worth looking at the KBW Regional Banking Index, which was down in a big way overall.

SEANA SMITH: Yeah, certainly down in a massive way. When you take a look-- I think the sentiment is really mixed on the street because you have a handful investors clearly worried. You can see that by today's action because of what could potentially come.

We asked [INAUDIBLE] yesterday if there was a potential for another bank to fail and what he said was there's absolute certainty that another bank is going to fail. And he said what the people are looking for out there on the street right now about whether or not the exposure here to fixed rate mortgages, also exposure to commercial real estate. So still some of those banks that had been viewed over the last six weeks at risk in addition to First Republic are the ones that are seeing the biggest losses today. Even though, like you said, deposits certainly trending in the right direction at the end of the quarter.

AKIKO FUJITA: Yeah. And by the way, we have a Fed meeting and a decision coming tomorrow. And of course, the concern is that further rate hikes are going to eat into profits of regional banks.