More US regional banks on the brink as crisis deepens

The US banking crisis escalated overnight as the futures of three US lenders were at stake.

On another torrid day for regional banks, contagion fears ripped through trading desks on Wall Street as stocks diverted.

Shares in California-based Pacwest plunged to a record low, dropping about 50 percent at one point before closing nearly 42 percent after it admitted it was looking for a buyer.

Arizona’s Western Alliance fell 35 percent when it clarified it hasn’t hired consultants to research a sale.

Western Alliance, which has a market capitalization of £1.5bn and holds £60bn in assets, also tried to reassure investors by saying deposit flows were normal, with US officials believed to be monitoring withdrawals more closely than stock prices.

Nevertheless, regulators stepped in to halt trading during both banks’ session, though the suspensions were only temporary.

A third lender – Memphis-based First Horizon – came under the spotlight when a £10bn takeover by Canada’s TD Bank fell through.

The two banks blamed uncertainty over regulatory approval, but analysts said the current climate was no time for a merger. The share of First Horizon fell by 33.1 percent.

The jitters spread to heavyweights, including Bank of America, which fell 3 percent, while Wells Fargo lost 4.3 percent, Citigroup lost 1.8 percent and Goldman Sachs fell 2.4 percent.

Neil Wilson, an analyst at Markets, said: “The damage is now piling up across the industry. JP Morgan will not step in again to save the day. So who does?’

Bank runs have brought down four US lenders since March: Silicon Valley Bank (SVB), Signature Bank, Silvergate and First Republic.

The latter went into receivership on Monday in a deal that saw JP Morgan take over most of the bankrupt company.

There has been no rest. Activist investor Nelson Peltz, whose daughter is married to Brooklyn Beckham, warned First Republic won’t be the last to fail.

He called for expansion of deposit insurance to help regional lenders, saying depositors with more than $250,000 (£200,000) at a US-accredited bank would have to pay a small premium to the Federal Deposit Insurance Corporation.

Peltz said, “It should stop the outflow of deposits from the small regional and community banks. I don’t think we want all the money to just go to the big banks.

‘I don’t have a crystal ball and I don’t know what the balance sheets of these banks look like.

“If this stops with JP Morgan taking over First Republic, I’d be happy, but maybe not.”

Bill Ackman, CEO of New York hedge fund Pershing Square, said the entire US regional banking system is now at risk.

He wrote on Twitter: “Trust in a financial institution is built over decades and destroyed in days. As each domino falls, the next weakest bank begins to wobble. We’re running out of time to fix this.’

The selloff came despite reassurances from Federal Reserve Chairman Jerome Powell, who said on Wednesday that the US banking system remained “sound and resilient.”

He was speaking after the US central bank voted to raise interest rates to a 16-year high of between 5 percent and 5.25 percent.

So far, the fallout in the UK has been muted, although figures from the Bank of England showed yesterday that Britons were withdrawing record amounts of cash from accounts in March, the same month the SVB went bankrupt.

A total of £4.8bn was withdrawn from UK banks and building societies in March – the highest number since measurements began in 1997. Last week a range of banks reported deposit outflows, including NatWest.