Wednesday, 28 February, 2024

Will These Five Banks Be the Next to Fail?


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Yahoo Finance notes “San Francisco-based First Republic dropped a record 62% on Monday, while Phoenix-based Western Alliance tumbled an unprecedented 47%. Dallas-based Comerica slid 28%.

“In the case of First Republic, Moody’s said its share of deposits that exceed the Federal insurance threshold make its funding profile more sensitive to rapid, large withdrawals.”

But the defaults and failure are not limited to the ones recently driving the business headlines.

As the global economy faces unprecedented challenges due to several factors — from COVID to inflation, the financial sector is bracing for a wave of defaults we have not seen seen 2008. Among the companies that appear poised to default soon are Western Alliance Bancorp, Intrust Financial Corp, UMB Financial Corp, Zions Bancorp, and Comerica Inc.

Western Alliance Bancorp, a regional bank based in Phoenix, Arizona, has seen its stock price plummet in recent months. The bank’s exposure to the energy sector, which has been hit hard by fluctuating oil prices, has raised concerns among investors about the bank’s ability to weather the economic storm. In addition, the bank’s loan portfolio includes a significant amount of commercial real estate loans, which are also at risk of default as businesses struggle to stay afloat.

Intrust Financial Corp, a Wichita, Kansas-based bank, has also seen its stock price decline in recent months. The bank’s loan portfolio includes a significant amount of consumer loans, including mortgages and auto loans, which are at risk of default as interest rates continue to rise and individuals are plagued with other economic issues. In addition, the bank’s exposure to the energy sector has also raised concerns among investors.

UMB Financial Corp, a bank based in Kansas City, Missouri, has a loan portfolio that includes a significant amount of commercial real estate loans. With many businesses struggling to pay their rent or mortgage payments, the bank is at risk of defaults on these loans. Add the fact that many companies are letting their employees work from home, commercial Real Estate has become a nightmare. In addition, the bank’s exposure to the energy sector has also raised concerns among investors.

Zions Bancorp, a regional bank based in Salt Lake City, Utah, has a loan portfolio that includes a significant amount of commercial real estate loans and energy sector loans. With the economic downturn hitting these sectors particularly hard, the bank is at risk of defaults on these loans. In addition, the bank’s exposure to small and medium-sized businesses, which are also struggling to stay afloat, has raised concerns among investors.

Comerica Inc, a bank based in Dallas, Texas, has seen its stock price decline in recent months due to concerns about the bank’s exposure to the energy sector. The bank has a significant amount of loans to oil and gas companies, which are at risk of default as oil prices continue to remain volatile. In addition, the bank’s loan portfolio includes a significant amount of commercial real estate loans, which are also at risk of default as businesses struggle to stay afloat.

While these five banks are all facing significant challenges, it is important to note that they are not alone. The financial sector as a whole is bracing for a wave of defaults as businesses and consumers struggle to stay afloat. In addition to the banks mentioned above, other financial institutions, including credit unions and non-bank lenders, are also at risk of defaults.

To mitigate the risk of defaults, regulators and policymakers are taking several actions, such as bailing out depositors (rather than banks). This is designed to calm fears and to encourage people not to do a run on banks since they know their deposits are allegedly safe.

The question is, are these actions enough? Anxiety is high and there is genuine concern that these failures will have a contagion effect.

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