Regional Bank Stocks Bounce Back After Two Days of Slump

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Shares of mid-sized US lenders have edged higher on Wednesday after two days of losses. Investors have been anxious about whether the collapse of First Republic Bank could mean more trouble for other regional banks. PacWest Bancorp saw its shares rise by 6.5% in early afternoon trading after having tumbled 28% on Tuesday to close at its lowest level on record. Meanwhile, Western Alliance Bank advanced 4.2%, and Comerica and Valley National Bankcorp added nearly 1% and more than 2%, respectively. The KBW Regional Banking Index also rose by 2% after closing at its lowest level since December 2020 on Tuesday.

According to Brown Brothers Harriman analysts, the recent selloff of regional bank stocks highlights investor unease over the banks' outlook following the First Republic deal. The bank's exposure to the commercial real estate sector, particularly office buildings, has also sparked investor worries, given rising interest rates.

Evercore ISI analysts lowered their 2023 earnings outlook for regional lenders and now forecast a nearly 1% decline from a year earlier, compared to already lowered expectations of 4% growth. The US Federal Reserve is expected to announce a 25 basis-point interest rate hike following a meeting of its Federal Open Markets Committee meeting on Wednesday.

"Persistent financial market turmoil, following the collapse and buyout of First Republic Bank earlier this week, has ramped-up bets that this hike will be followed by a pause," said B. Reily's chief market strategist Art Hogan in a note to investors. Hogan also added that tighter lending conditions and signs that the economy is stalling suggest inflation will cool more meaningfully in the coming months.

Despite the recent selloff of regional bank stocks, PacWest Bancorp CEO, Matt Wagner, expressed confidence in the bank's performance, citing the bank's strong credit profile, diversified loan portfolio, and liquidity.

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