Dip Buyers Scorched by Cratering Bank Stocks Rush for the Exits

(Bloomberg) — The fear-driven selloff that’s cut the stock-market values of some banks in half may look like a perfect chance to buy the dips. If only they’d stop falling.

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As shares of lenders tumbled for a fourth straight week, investors are showing signs of throwing in the towel. They yanked $2.1 billion out of financial stocks in the week through May 10, the most since May 2022, according to Bank of America Corp. strategists citing EPFR Global data. Exchange-traded funds focused on the sector saw the biggest exodus of cash since September, according to Refinitiv Lipper. And the $29 billion Financial Select Sector SPDR Fund has seen more than $2 billion pulled out over just the past two weeks.

The retreat threatens to prolong the rout sparked by the collapse of Silicon Valley Bank and other lenders over the past two months. Those failures fueled widespread concerns that others would be hammered by a similar combination of rising costs and mounting losses as the Federal Reserve’s most aggressive interest-rate hikes in a decade ripple through the economy.

The selloff has emboldened short sellers and turned regional banks into one of the hardest hit corners of the stock market this year, with Western Alliance Bancorp, Zions Bancorp, Comerica and KeyCorp all tumbling by at least 50% since the start of March. Eight of the 10 worst performers in the S&P 500 this year are financials.

Hovde Group analyst Ben Gerlinger has been insistent that the drop in Western Alliance’s stock is unjustified and irrational, saying the bank is in a stronger position than its peers. But he said trading has taken on a herd mentality, with investors turning on bank stocks altogether.

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“There’s not a lot of confidence that the bank runs will stop,” said Gerlinger, though he said data shows deposit outflows overall for regional banks were muted and much of the fear is misplaced. The analyst has an “outperform” rating on Western Alliance and expects the stock price to roughly double over the next year.

Regulators have also tried to…


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