Shares in Western Alliance Bancorp (NYSE:WAL) stock fell 10% overnight after Fitch put its debt on “rating watch negative.” The move doesn’t mean its financing costs are rising, but it does mean that they might.
Moody’s put WAL debt on a watchlist for a potential downgrade earlier in the week.
Western Alliance is suffering the same contagion as other banks serving the tech sector. SVB Financial’s (NASDAQ:SIVB) Silicon Valley Bank was liquidated last week, and First Republic (NYSE:FRC) is threatened.
Early on March 16, WAL stock was trading for $29 per share, cutting its market capitalization to about $3.2 billion. On March 8, it traded near $72.
Holding the Line on Fear
Ken Griffin, the founder of hedge fund Citadel Advisors, has criticized the depositor bailout at SVB, calling it anti-capitalist. He disclosed a 5.3% stake in WAL two days ago. The move helped WAL stock come off a low of $26 per share.
Shares in most regional bank stocks are falling, as people fear runs of the type that took down SVB and Signature Bank (NASDAQ:SBNY). What began as a tech story is becoming a more general banking story.
The fear is that any bank whose business is concentrated in one sector, or one region, could be susceptible to a loss of depositor confidence. Many banks are sitting on big unrealized losses in their bond portfolios, which lose value as interest rates rise.
The losses don’t matter unless the bank is forced to sell the bonds, as SVB was forced to sell last week. Then, the paper losses became real losses, which SVB tried to make up by selling new equity. When the effort to raise new equity failed, the bank collapsed.
What Happens Next?
Investors are being urged to hold the line at WAL, which expects to report earnings of $2.41 per share and revenue of almost $700 million on April 23.
But fear is a powerful thing, as was shown in past bank crises. Those who conquer fear, however, can make a lot of money.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
