PacWest Bancorp's announcement of cutting its quarterly dividend to one cent has led to a surge of as much as 30% in its stock prices, along with similar gains in other US regional banks such as Western Alliance Bancorp and Zions Bancorp. The move is aimed at accelerating capital build plans while maintaining the "soundness" of its business. The KBW Regional Banking Index has also seen gains of up to 1.8%.
The announcement comes after a tumultuous week for regional lenders, with four banks collapsing since early March. Concerns over unrealized losses on bond investments, deposit levels, and exposure to real estate lending have also fueled a selloff in the sector.
However, analysts have noted that the dividend reduction makes sense and can help pace capital building. PacWest's statement of its business being "fundamentally sound" has also been interpreted as a confirmation that trends are manageable.
Despite the recent rally, doubts over the stability of regional banks persist, with Fitch placing PacWest on "Rating Watch Negative" due to the impact of a potential transaction from its strategic review and the uncertainty regarding its strategic direction.
Possible positive catalysts for US bank shares include the Federal Deposit Insurance Corporation expanding deposit insurance and the Fed discussing the road map for ending quantitative tightening, according to Morgan Stanley analysts.
Larger lenders such as Bank of America Corp. and Wells Fargo & Co. are also gaining, but the S&P 500 financials index is on the verge of falling back below its 2007 peak, which could be an ominous signal for the broader stock market, according to hedge-fund manager Jim Roppel.
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