Bank stocks were mixed Tuesday after a handful were poised for early losses as regulators and investors digest the latest bank lending data. Meanwhile, calls for a ban on short sales continued to grow as the financial sector wobbles.
Bank Lending, Confidence Surveys
Lending conditions tightened in April, the latest data from the Senior Loan Officer Opinion Survey (SLOOS) showed Monday afternoon. That continued a trend from late 2022. Demand for loans also fell, suggesting banks were bracing for a downturn while, at the same time, seeing less business come though the door.
The industry reported business-loan standards tightened, making credit harder to get. And demand for commercial and industrial (C&I) loans to firms of all sizes weakened during the first quarter. The same was true — tighter standards and weaker demand — for all commercial real estate (CRE) loans.
On the residential real estate side, household borrowing standards tightened across all categories, except for government-sponsored enterprise (GSE)-eligible and government residential mortgages. Both GSE and government residential mortgage standards were basically unchanged. Demand for all residential loan categories also weakened.
Bank respondents also reported higher standards and weaker demand for home equity lines of credit (HELOCs). Consumer loan category standards tightened. And demand for auto and other consumer loans also fell, while credit card demand remained unchanged.
Data from the May IBD/TIPP poll shows Americans are losing confidence in banks, despite assurances from regulators and officials that the worst of the banking panic is over. According to the latest survey, 57% of respondents are confident in the banking and financial industry as of May, down from 61% in April. Meanwhile, those not confident in the industry increased to 39% in May from 33% in April.
Support For Short Sale Ban Grows
Mark Fitzgibbon and Stephen Scouten, Piper Sandler analysts covering the sector, wrote in a Monday research note that "regional bank turmoil has increased at a pace that is disconnected from the reality of fundamentals," MarketWatch reported.
The analysts attributed the declines in recent weeks, in part, to short sellers profiting off the volatile trading environment during the panic following the string of bank failures.
"We continue to believe that equity manipulation, if unabated, presents a risk to the confidence needed for the U.S. banking system to function," they wrote. "We believe that the SEC, Congress and the banks themselves should act swiftly and decisively to stabilize the sector."
The pair argued the SEC should ban short sales on regional banks to allow Congress time to agree on a plan to raise deposit insurance limits and nix any potential bank runs inspired by regional bank stock weakness. Otherwise, bank stocks will likely continue being manipulated and market integrity will be compromised.
The American Bankers Association sent a letter to the SEC on Thursday requesting a probe into the significant number of short sales of publicly-traded bank stocks.
"The harm caused by short shelling that runs counter to economic fundamentals ultimately falls on small investors, who see value destroyed by others' predatory behavior," ABA President and CEO Rob Nichols wrote.
Reuters reported short sellers raked in $378.9 million in profits on Thursday alone by betting against certain regional banks, according to data from analytics firm Ortex.
SEC Chair Gensler Promises Enforcement
SEC Chair Gary Gensler issued a statement late Thursday on current market events. "As I've said, in times of increased volatility and uncertainty, the SEC is particularly focused on identifying and prosecuting any form of misconduct that might threaten investors, capital formation, or the markets more broadly," Gensler wrote.
He issued a similar statement on March 12 at the start of the bank crisis. "We will investigate and bring enforcement actions if we find violations of the federal securities law," Gensler wrote at the time.
The ABA probe request and Gensler's statement came after Western Alliance denied reports it was exploring a potential sale, causing the stock to dive.
Bank Stocks
Regional bank stocks pared their early Tuesday losses. Financial shares reversed Monday after spiking in early trading.
PacWest Bancorp stock closed 2.4% higher Tuesday after jumping 7.5% intraday. PACW stock tumbled roughly 8% in early trading. Shares spiked nearly 87% over the past two trading days. PACW stock rebounded 30% early Monday after cutting its dividend but pared gains to 3.6%.
Western Alliance stock eased 1.2% after briefly turning positive during trading. WAL shares spiked 50% during trading Friday.
Regions Financial, Truist Financial and PNC Financial Services shares all lagged.
The SPDR S&P Regional Banking ETF eased 0.5% on the day.
Large banks JPMorgan Chase, Morgan Stanley, Goldman Sachs and Bank of America all edged slightly lower.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
