Shares of major U.S. regional lenders edged higher Friday, reversing early losses in skittish trading as investors bought some battered stocks but remained uncertain about the financial stability of mid-sized banks.
Western Alliance rose 2.1%, Synovus Financial gained 2.2%, and Truist Financial added 1.8%. The KBW Regional Banking index, which has fallen nearly 14% so far this month, was up 0.39%.
But PacWest Bancorp, which lost 23% on Thursday after reporting a decline in deposits, dropped nearly 3%. Comerica Inc., Valley National Bancorp and KeyCorp fell 2.14%, 1.1% and 1.1%%, respectively.
"More U.S. banks have been in the market crosshairs ... despite many of the pressured banks having generally solid credit fundamentals," DBRS Morningstar analysts said, adding that investor fears would likely persist until regulators extended deposit insurance or barred investors from betting against stocks, a practice known as short selling.
Markets are eyeing negotiations over the U.S. debt ceiling, with President Joe Biden's Democrats and Republicans, who control the House of Representatives, at odds over raising the country's borrowing cap.
The U.S. faces a "significant risk" of defaulting on payment obligations within the first two weeks of June without a debt ceiling increase, the Congressional Budget Office said.
U.S. Treasury Secretary Janet Yellen will discuss the impasse next week with board members of the Bank Policy Institute — which includes JPMorgan Chase CEO Jamie Dimon and Citigroup CEO Jane Fraser — a Treasury official told Reuters. All three major Wall Street indexes, including the S&P 500 , closed lower after data showed U.S. consumer sentiment slumped to a six-month low.
"Markets will focus on banking fears, debt ceiling concerns," among other economic indicators, TD Securities analysts wrote in an investor note.
On Thursday, the Federal Deposit Insurance Corporation said it will replenish its deposit insurance fund by imposing a special assessment fee of 0.125% on uninsured deposits of lenders in excess of $5 billion, although analysts said the levy should not be a worry for banks.
"While the special assessment is meaningful in terms of dollars overall to the industry, it is not as meaningful on a per-bank basis," Raymond James analysts wrote in a note.
Shares of Charles Schwab rose 2.5% after the brokerage firm said that so far in May, it had seen fewer clients move funds away from its accounts to other high-yield products. The pace of such "cash realignment" has slowed for three straight months and will abate during 2023, it said.
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