PacWest, Western Alliance send regional bank stocks higher

Exante Data Inc. Founder and CEO Jens Nordvig joins Yahoo Finance Live to discuss the rise of PacWest and Western Alliance stocks after announcing the sale of real estate and the banking sector's outlook amid system failures.

Video transcript

- We've been touching on the regional banks once again this morning. PacWest, for example, continuing its climb, its rebound that we have been seeing after announcing the sale of some real estate yesterday. And broadly, we've been seeing those regional banks rebound. Let's bring Jens Nordvig back into the conversation. Founder and CEO of Exante and MarketReader.

Jens, you were just saying how you were screening hundreds of banks after the collapse of Silicon Valley Bank. You were flagged at First Republic. What's the screen showing you right now? Are there still other trouble spots, or have things really calm down?

JENS NORDVIG: I think when we are screening the banking sector, not just today, but over the last couple of weeks, what you're seeing is that we are moving in these waves, where all the different banks move very similarly. Lots of banks moving to 3% without a heck of a lot of news. And then you can go and check at the volume indicators that there's actually a lot of volume. So this is like a typical short covering dynamic that we have been through, where it doesn't really have a lot of micro-differentiation. But the whole sector is moving in tandem.

That's been a dynamic over the last, I would say, two or three weeks. And I would also say, the question I'm getting from clients is, OK, if we have another leg down, another piece of bad news, is it going to feed into all the other asset markets in the same way? I don't think so. These links are always very nonlinear. They work in a certain way for a period of time. And if there's one small bank that is having some negative headlines, I don't think it's going to have the same spillover into the rest of the sector.

Again, I think we've started to see some decoupling. There's actually a group of regional banks, the big ones, Fifth Third, and so forth, that have started to trade much more resiliently. And now, we've had this lower end, some of the smaller ones that have also bounced back. But I think it's a more healthy situation you're looking at. We still have to watch the deposits. But the price action is looking like we're heading to a more stable period to me.

- Following the event, what has your screener told you about financial conditions? And how much that has started to tighten?

JENS NORDVIG: Yes. That's the big question. Fed is, obviously, asking that question as well. And you can see it from some of the Fed speeches. Some people say, OK, what has happened in the banking system is worth several hikes. But estimating that with any precision is very hard. And the Fed is going to be very cautious in terms of making that determination until they've really seen some deterioration in the data.

So when you look at the actual data from the US banking system, we can track that every week. And they have to be very careful. Because when there's a bank that drops out or some loan portfolio that gets sold, we have volatility in the data. We had early in the crisis, some people freaked out. Oh, it's dropping. But it was just because the data was distorted.

If you take those distortions out, actually, lending in the US banking system is relatively stable. You cannot see a big impact from this shock yet. I think to quite a few people surprise. Until you can see that trend really rolling over in the data, I think the Fed is going to be watching it, but not really setting interest rates in a way that's dominated by that force.

And I think that's exactly what you're seeing now. We had cuts priced. We talked about it. And as long as that lending dynamic is not deteriorating sharply, we're actually going to move back to essentially the economics dominating what the Fed is going to do, as opposed to this banking tension.

- Interesting. Jens, great to see you. Thanks for coming in. Appreciate it. We'll see you again soon. Jens Nordvig of Exante Data and MarketReader.