By Niket Nishant
(Reuters) -Shares of U.S. regional lenders climbed on Wednesday, looking to break out of range-bound trading as an update on Western Alliance Bancorp’s deposit levels soothed concerns that the banking crisis was getting worse.
Western Alliance shares shot up 12% to $35.38, erasing losses recorded over the last two weeks, as the bank’s deposits grew by more than $2 billion from March-end to May 12 and brokerage Bank of America Global Research resumed its coverage of the lender with a “buy” rating and a $42 price target.
The company’s business model “was more resilient than perceived”, BofA said.
More than 79% of Western Alliance’s deposits were insured, it said, higher than the 68% as of March 31.
Deposit insurance has become a thorny issue for regulators and banks alike. Panic among customers holding more than $250,000 per account – the upper limit of the Federal Deposit Insurance Corporation’s guarantee – was a major reason for the demise of Silicon Valley Bank in March.
Regional lenders have seen their stock valuations battered by worries around a broader crisis and funding costs, with consumers moving money into high-yield alternatives after three mid-sized U.S. lenders collapsed over the past two months.
“We expect betas to rise further as banks try to attract/retain deposits, while they shrink securities balances and increase wholesale funding in light of an uncertain environment,” Jefferies analysts wrote in a note to clients.
Deposit betas gauge how much of changes in interest rates are passed on to consumers. Several analysts have been expecting a hit to the near-term profitability of banks as they pay out higher rates to attract customers.
PacWest Bancorp’s shares were up 9% at $5, after seesawing over the last few sessions – rallying nearly 18% on Monday only to give back most of those gains a day later.
Shares of Comerica Inc, Zions Bancorp and KeyCorp were also up between 4.5% and 5%. The six largest U.S. banks were also up between 1.5% and 2.7%.
Deposit flows at U.S. banks, which investors have been poring through for signs of distress, climbed to $17.16 trillion in the week ended May 3, marking the first increase in four weeks, according to data from the Federal Reserve.
Meanwhile, President Joe Biden and top congressional Republican Kevin McCarthy edged closer to a deal to avoid a looming U.S. debt default.
(Reporting by Niket Nishant in Bengaluru; Editing by Devika Syamnath)
