KRE ETF surges as PacWest, Comerica, KeyCorp stocks lead

Regional bank stocks continued surging on Monday as the recent concerns about the industry faded. The SPDR S&P Regional Banking ETF (KRE) stock jumped by more than 2% in the pre-market after it rose by over 6% on Friday.

PacWest stock price leads gains

PacWest (NASDAQ: FRC), a leading regional bank that some believe is at a significant risk, saw its stock price surge by over 36% in the pre-market session. It had soared by over 81% on Friday, bringing its total market cap to over $692 million on Friday.

PacWest has done well as investors looked at the state of business. As I wrote here, the company’s deposits stabilized in the end of the first quarter. The company also decided to slash its dividend as it moves to preserve capital. And unlike First Republic Bank, most of the company’s deposits are insured.

Western Alliance Bancorp stock price soared by over 22% on Friday and by 10% in the premarket. The company’s market cap has risen to $145 million. The same is true for Comerica whose stock price soared by 16% on Friday. M&T Bank stock jumped by 4% before the market opened while KeyCorp shares soared by 7%.

This could be a dead cat bounce

Regional banks like PacWest and Comerica are now living in a normal following the collapse of First Republic Bank and Silicon Valley Bank. Most of them will now be forced to slash dividends and suspend their share repurchases.

These measures are necessary as companies deal with rising cost of capital. Further, the companies are exposed to the challenges in the commercial real estate industry. Most importantly, regional banks are seeing outflows as customers move to larger banks like Bank of America and JP Morgan. 

In its most recent financial results showed that deposits jumped to $2.38 trillion. Those at Bank of America jumped by over $538 billion. Further, people are moving money to money market funds.

Therefore, this recovery of regional bank stocks could be a dead cat bounce, which happens after an asset drops sharply.