May 4 (Reuters) - Shares of U.S. bank PacWest Bancorp slid further in premarket trade on Thursday, dragging other regional lenders down, after the Los Angeles-based lender said it was in talks with potential partners and investors about strategic options, spurring market fears of a worsening banking crisis.
PacWest (PACW.O) slumped 37% in premarket trade, after having lost 29% since Monday. Reuters had reported on Wednesday that PacWest was exploring strategic options including a potential sale or capital raising, which the lender confirmed late in the day.
Western Alliance Bancorp shares slumped 17% (WAL.N) despite its efforts to reassure investors that it had not seen unusual deposit outflows following the sale of collapsed lender First Republic Bank to JPMorgan Chase & Co (JPM.N) on Monday.
Zion Bancorporation (ZION.O), KeyCorp (KEY.N), Valley National Bancorp (VLY.O), Comerica (CMA.N) and First Horizon (FHN.N) dropped between 2% and 6%. The SPDR S&P Regional Banking ETF (KRE.P) shed 2.8%.
PacWest shares have lost 72% of their value this year, placing it among the worst performing constituents on the small-cap S&P 600 regional banks index (.SPSMCBNKS), which has lost a third of its value in the same period.
The issue is "increasing concerns that the banking crisis could take another turn for the worse...as worries swirl about deposit flight and the lack of asset diversification among smaller lenders," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
First Republic's collapse, the third major casualty of the biggest crisis to hit the U.S. banking sector since 2008, rekindled a slide in shares of regional lenders this week despite regulatory efforts to call an end to the banking crisis that began with the collapse of Silicon Valley Bank in March.
U.S. Federal Reserve Chair Jerome Powell on Wednesday reiterated the banking system remains resilient despite "strains" in March after the central bank delivered a 25-basis rate hike and signaled a pause in the tightening cycle was on the table.
U.S. stock index futures were flat at 1030 GMT. The S&P 500 (.SPX) fell 0.70% on Wednesday.
"Many investors thought falling inflation would be the principal reason why the Fed would pivot. That’s not the case now," said Russ Mould, investment director at AJ Bell.
"Under the current circumstances, the Fed is more likely to pause rate hikes because the U.S. faces the prospect of a recession and in light of more banks struggling. Therefore, not a reason to celebrate."
PacWest Bancorp reported a loss of $1.1 billion attributed to shareholders for the first quarter of the year.
In another sign of stress within the sector, First Horizon Corp (FHN.N) and Toronto-Dominion Bank Group (TD.TO) agreed to call off their $13.4 billion deal as the banks said they did not have clarity on if and when they would get the regulatory approvals.
