Wall Street ends down as PacWest fuels fears of deeper bank crisis

By Noel Randewich and Ankika Biswas

(Reuters) – Wall Street ended lower on Thursday after PacWest’s move to explore strategic options deepened fears about the health of U.S. lenders and hit shares of regional banks as well as JPMorgan Chase (NYSE:), Wells Fargo (NYSE:) & Co and other major financial players.

PacWest Bancorp tumbled after it confirmed it was exploring strategic options, including a sale. Shares of the regional lender and other banks got hammered recently on fears of a worsening banking crisis.

Western Alliance (NYSE:) Bancorp plummeted, with trading in the stock halted multiple times. At its session low, Western Alliance shares were down more than 60% and the lender denied a report that it was exploring a potential sale.

KeyCorp (NYSE:), Valley National Bancorp (NASDAQ:) and Zions Bancorp also fell. The KBW Regional Banking index dropped as much as 7%.

Canada’s Toronto-Dominion Bank Group called off its $13.4 billion acquisition of First Horizon (NYSE:) Corp, triggering a deep decline in the U.S. bank’s shares.

“Regional banks and tightening credit conditions are weighing on the market as investors try to recalibrate on where we are in terms of credit cycles and bank lending standards, and when a potential recession may hit,” said Zhe Shen, managing director of diversifying strategies at TIFF Investment Management.   

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to as much as 21 points, its highest since late March.

According to preliminary data, the S&P 500 lost 29.99 points, or 0.73%, to end at 4,060.76 points, while the Nasdaq Composite lost 61.39 points, or 0.51%, to 11,963.94. The Dow Jones Industrial Average fell 292.18 points, or 0.87%, to 33,122.06.

On Sunday, regulators seized troubled First Republic Bank (OTC:) and JPMorgan Chase agreed to buy majority of its assets, marking the largest U.S. bank failure since the 2008 financial crisis.

With investors increasingly worried a widening banking crisis and an economic downturn, U.S. interest rate futures prices now imply traders mostly expect the U.S. Federal Reserve to cut rates by the central bank’s July meeting, according to CME Group’s (NASDAQ:) FedWatch Tool.

The Fed on Wednesday raised interest rates by 25 basis points, while Chair Jerome Powell said that it was too soon to say with certainty that the rate-hike cycle was over as inflation remains the chief concern.

Among the largest U.S. banks, JPMorgan and Wells Fargo also lost ground.

Data on Thursday showed the number of Americans filing new claims for jobless benefits increased last week as the labor market gradually softens amid higher interest rates, which are cooling demand in the economy.

Apple Inc (NASDAQ:) dipped, with the iPhone maker is set to report quarterly results after the closing bell, including an update on its funds set aside for buybacks.

ROBOT

Moderna (NASDAQ:) Inc jumped following stronger-than-expected sales for its COVID-19 vaccine for the first quarter.

Qualcomm (NASDAQ:) Inc slumped after the chip designer’s third-quarter forecasts missed estimates, while Paramount Global Inc tanked about 27% after missing first-quarter revenue estimates amid a weak advertising market in its TV business.