Western Alliance Bancorp. (WAL) shares slumped Wednesday after analysts raised questions about the lender's deposit base following a quarterly investor update published late Tuesday.
Western Alliance said around 68% of its total deposit base was within the Federal Deposit Insurance Corp. threshold of $250,000 by the end of March, a figure it said was "significantly higher" than at the end of last year.
The bank added that it has no borrowings outstanding from the Federal Reserve's discount window following what it called a 'repositioning' of its balance sheet.
The group noted that unrealized losses in its held-for-investment portfolio narrowed to $2.9 billion, from $4.2 billion, over the whole of the first quarter. During that time benchmark 10-year Treasury note yields -- which move in the opposite direction of prices -- fell from 3.831% to around 3.49%.
Analysts noted, however, that Western Alliance did not detail whether its insured deposits improved as a result of lower insured balances or a lower overall deposit. They also expressed concern that the bank made no mention of borrowings from the Fed's Bank Term Funding Program, which was launched last month in the wake of the Silicon Valley Bank collapse.
'Diversified Business Model': Western Alliance
“Western Alliance’s uniquely flexible, diversified business model positioned us to weather the liquidity tightness that enveloped the industry over the past month," said CEO Ken Vecchione. "Put simply, Western Alliance Bank is different; this diversification continues to distinguish us from monoline or sector-concentrated peer banks."
"This also demonstrates the value of Western Alliance’s scalable national funding channels and allows us to continue to serve clients across sectors, geographies, or macro trends,” Vecchione added.
Western Alliance shares were marked 17.4% lower in mid-day Wednesday trading to change hands at $29.69 each, a move that would extend the stock's one-month decline to around 63%.
JPMorgan (JPM) CEO Jamie Dimon warned yesterday that the U.S. banking crisis "is not yet over," adding that tighter credit conditions linked to the failure of Silicon Valley Bank and the rescue of Credit Suisse have increased the odds of recession.
In an annual letter to JPMorgan shareholders, Dimon said the current banking crisis, while unlike the one in 2008, will be felt "for years to come." That's even as it focuses on smaller lenders with deposit and liability exposures that the JPMorgan CEO insisted were "hiding in plain sight."
Western Alliance will publish its first quarter earnings on April 18, the bank said yesterday.
Analysts at D.A. Davidson are focused "squarely on balance sheet management and deposit trends" for reg-onal lenders such as Western Alliance, favoring those with "with granular deposit bases, pre-existing excess liquidity, and strong capital."
"While the worst fears of a widespread banking crisis have subsided to a degree, capital and liquidity will remain hot button issues into the upcoming reporting season at a minimum," said sector analyst Gary Tenner, who carries a buy rating on Western Alliance.
Weaker Financial-Sector Earnings Outlook
S&P Global Market Intelligence data, published last week notes that financial sector earnings were forecast to grow by around 4.5% over the first quarter prior to the SVB meltdown, but are now estimated to fall by around 7.7%.
Data from Bank of America, in fact, indicate tighter lending standards reduce consumer-loan growth around 10% over a three-year period but begin to appear within two to three quarters of their implementation.
This could prove crucial for bank profits. That's because many will need to both increase their deposit rates to arrest the record rate of flight from regional banks to larger lenders, while they also face the possibility of higher fees to cover the multibillion-dollar hit the FDIC has taken as part of its rescue effort.
Deposits at smaller U.S. banks, defined as those sitting outside the top 25 in terms of asset size, fell by $119 billion to $5.46 trillion over the seven-day period that ended on March 15, according to Fed data.
Some of that flight found its way into larger banks, however, with the data showing deposits at larger institutions rose $67 billion to $10.74 trillion.
While not evident from the Fed data, much of the cash that is leaving smaller banks could be finding its way into money market funds, according to Bank of America's closely-tracked Flow Show report. The report suggested an addition of more than $300 billion over the past month, taking the overall tally to a record $5.1 trillion.
Bank profits, meanwhile, are the second-largest contributor to overall S&P 500 earnings, at 18%, just behind the 21% contribution from tech, and their near-term weakness is yet to find its way into first-quarter or full-year projections.
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