US regional banks tumble as Europe digests another ECB rate hike

·4-min read
The ECB joined the Fed in dropping a commitment to raise interest rates further, but indicated more hikes are likely
The ECB joined the Fed in dropping a commitment to raise interest rates further, but indicated more hikes are likely

US regional banks endured another torrid day in the financial markets Thursday, after European stocks slid as traders digested a further interest rate hike from the European Central Bank.

All three major US indices ended the day in the red while regional banks nosedived on fresh concerns about their financial health, following another quarter-point hike from the US Federal Reserve.

The hardest-hit stocks included PacWest Bancorp which slumped 50.6 percent, First Horizon which plunged 33.6 percent and Western Alliance Bancorporation which lost 38.5 percent.

The European Central Bank joined the US Federal Reserve Thursday in increasing its main interest rate by a quarter percentage point, slowing the pace of its hikes.

Like the Fed, which announced its decision on Wednesday, the ECB also dropped language from its statement indicating a commitment to raise interest rates further at its next meeting.

ECB chief Christine Lagarde indicated however that the central bank has "more ground to cover" in fighting sky-high inflation, and said the change in guidance was not a signal of a pause in rate hikes.

"Based on the information today, we have more ground to cover and we're not pausing," she told a press conference.

European stocks ended the day lower on the news.

The euro, which had fallen against the dollar following the initial announcement, briefly rebounded after Lagarde's statement, but then fell further.

- Fresh banking fears -

Fears of widespread banking turmoil continued into Thursday, with shares in regional US lender PacWest plunging once more.

The sell-off in its shares had been exacerbated by media reports saying that the bank was considering the possibility of a sale or other capital-raising measures in the wake of the recent collapses of other midsized lenders.

PacWest sought to reassure investors in a statement, insisting it had not "experienced out-of-the-ordinary deposit flows" since the banking fears first arose, and that its "cash and available liquidity remains solid."

But shares still fell sharply.

On an ugly day for financial stocks, two other midsized banks also suffered especially brutal trading days: First Horizon, which said its deal to be acquired by TD Bank had fallen apart; and Western Alliance Bancorporation, which denied a published report that it was considering selling itself.

Other US regional banks that fell significantly included Cleveland-based KeyCorp, Dallas-based Comerica and Zions Bancorporation of Utah.

CFRA Research analyst Alexander Yokum described the dynamic as a "vicious feedback loop" where "fear has completely taken over." The tendency is exacerbated by short sellers, who make bets on falling stocks.

"There's a little bit of a self-fulfilling prophecy," Yokum said. "When the stock's down, shorts get emboldened, and depositors may take their deposits out."

Oil prices stabilized after having fallen sharply in recent days, on expectations of weaker demand owing to an economic slowdown.

Also on investors' minds were fears that Democrats and Republicans might fail to strike a deal on raising the US debt ceiling, triggering a damaging default as early as June 1.

- Key figures around 2050 GMT -

New York - Dow: DOWN 0.9 percent at 33,127.74 points (close)

New York - S&P 500: DOWN 0.7 percent at 4,061.22 (close)

New York - Nasdaq: DOWN 0.5 percent at 11,966.40 (close)

London - FTSE 100: DOWN 1.1 percent at 7,702.64 (close)

Frankfurt - DAX: DOWN 0.5 percent at 15,734.24 (close)

Paris - CAC 40: DOWN 0.9 percent at 7,340.77 (close)

EURO STOXX 50: DOWN 0.5 percent at 4,286.78 (close)

Hong Kong - Hang Seng Index: UP 1.3 percent at 19,948.73 (close)

Shanghai - Composite: UP 0.8 percent at 3,350.46 (close)

Tokyo - Nikkei 225: Closed for holiday

Euro/dollar: DOWN at $1.1017 from $1.1062 Wednesday

Pound/dollar: UP at $1.2572 from $1.2564 Wednesday

Dollar/yen: DOWN at 134.28 yen from 134.71 yen Wednesday

Euro/pound: DOWN at 87.59 pence from 88.04 pence Wednesday

West Texas Intermediate: DOWN 0.1 percent at $68.56 per barrel

Brent North Sea crude: UP 0.2 percent at $72.50 per barrel