Western Alliance Bancorp becomes latest regional bank at risk of debt downgrade

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Western Alliance Bancorp’s stock fell 8% after credit-rating agency Fitch Ratings placed the company’s BBB-plus long-term-issuer default rating on review for a possible downgrade.

Western Alliance is the latest regional bank to face such an action in the wake of the failure last week of Silicon Valley Bank following a run on its deposits. That failure triggered steep selloffs of shares in other regional banks, including Western Alliance, which was founded in 1995 and is based in Phoenix, Ariz.

The BBB-plus rating is three notches above junk.

The stock

has lost more than half its value in the month to date and hit a three-year low on Monday.

“Prior to this event, Fitch viewed [Western Alliance’s] funding and liquidity profile as supportive of its rating, but current market conditions have created liquidity stresses outside the baseline assumptions,” Fitch said in a statement.

Fitch is now considering the assignment of a negative or stable outlook, depending on market conditions and the impact on the bank’s deposit franchise, long-term earning power and capitalization.

Also read: Credit Suisse shares jump after bank says it will borrow from Swiss National Bank and buy back debt

Fitch noted that Western Alliance Bancorp reported cash reserves of $25 billion in a regulatory filing on Tuesday. The company’s cash is equivalent to about 47% of total deposits reported as of Dec. 31.

The company also “communicated moderate deposit outflows and insured deposits in excess of 50% of total deposits,” Fitch said.

“Since the statement we released last week, Western Alliance has taken additional steps to strengthen its liquidity position to ensure that we are in a position to meet all of our client funding needs, including increasing our borrowing capacity,” Chief Executive Kenneth Vecchione said in the filing.

The ratings agency said the Federal Reserve’s new Bank Term Funding Program “provides a further liquidity backstop at favorable terms” for Western Alliance Bancorp.  

In the meantime, the bank’s ratings reflect “strong earnings relative to mid-tier bank peers and consistently strong asset quality,” said Fitch.

“[Western Alliance] reported a loans/customer deposits ratio of 96.7% at end-2022, excluding loans held for sale, and a share of non-interest-bearing deposits equivalent to 36% of total deposits,” the agency said.

The action comes a day after Fitch and S&P Global Ratings downgraded First Republic Bank’s debt into junk-bond territory on concerns that the trouble at Silicon Valley Bank has trigged massive deposit flight to bigger banks that are perceived as being safer.

See more: First Republic Bank downgraded to ‘junk’ by S&P and Fitch on fears further deposit flight will hurt profitability

Other regional banks have been swept up in the selling, even as their senior managements rush to assure investors that they do not have the same profile of customer base as the failed banks.

JPMorgan said retail traders have sold some $163 million of single-stock exchange-traded funds in the past week, including $35 million of the Western Alliance ETF. The same trading group has sold $88 million of First Republic Bank. Overall, retail investors sold a net $2.2 billion in cash equities, most of it on Friday, immediately after Silicon Valley Bank was placed into receivership.

Don’t miss: Short sellers take aim at regional banks, seeing windfall profits of $3.53 billion in March to date — at least on paper

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