To The Moon

The continual rate hikes by the Fed is working to bring inflation numbers down and also bringing more banks to their knees. The Federal Reserve hiked interest rates by 25 basis points to a range of 5%-5.25%, as widely anticipated by the market, pushing borrowing costs to a new record in recent years.

0.25% TO 5.25%, highest since Jan 2021

The latest interest rates hike and the comment of not looking at pause adds to the concerns over the financial stability of regional banks, following the collapse in March of Silicon Valley Bank and Signature Bank, and the sale of First Republic Bank to JPMorgan Chase & Co. (JPM) this week. PacWest's shares have been diving this week in the wake of First Republic's collapse.

PacWest Bancorp (PACW) shares tumbled more than 50% in after-hours trading Wednesday, taking other bank stocks with it after a report that the company's executives were weighing a possible sale.

The report, based on anonymous sources, also said that the bank has not found much interest in an acquisition of the entire company, and could look to break it apart or raise fresh capital. Bloomberg also said that any buyer could risk a hefty loss due to loan markdowns.

More banks to fail in May

Shares of PacWest plunged 53% in after-hours trade on Wednesday. Pacific Western Bank has 67 branches in California, with one in Denver and one in Durham, N.C.

The sudden decline in Wednesday's extended session wrapped in other banks' stocks, including Western Alliance Bancorp (WAL) and Zions Bancorp NA (ZION). Shares of those banks were down 23% and 9%, respectively, in extended trading.

"Our strong banking franchise and our loyal, diversified customer base have driven us through one of the most challenging recent periods in the banking industry," PacWest Chief Executive Paul Taylor said in the company's earnings release last month.

"Our deposits have stabilized with total insured deposits increasing from 48% of total deposits at year-end to 71% of total deposits at March 31, 2023," he continued. "Importantly, deposits stabilized in the latter part of March and
rebounded nicely in April, increasing approximately $700 million subsequent to quarter-end."

PacWest finished the first quarter with total deposits of $28.2 billion.

May the force be with us

The big hits to some bank stocks on Wednesday came as the Federal Reserve yet again raised its key interest rate, as it tries to engineer a slowdown in the economy to lower prices.

The U.S. central bank also hinted it might be done with the tightening cycle by eliminating a phrase from the statement that anticipated additional policy firming. 

Nonetheless, Fed officials stated that in determining the extent to which additional policy firming may be appropriate, they would consider a number of factors, including upcoming economic data.

Market reactions from FOMC

Fed Chair Jerome Powell said the decision for the June meeting was open and data-dependent, and that he did not intend to cut rates this year, considering the board's current inflation projections.

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