Shares in PacWest Bancorp (PACW.O) jumped 70% amid a broader rebound in U.S. regional banks on Friday after analysts upgraded a number of lenders they said were oversold, while some investors said the surge may be short-lived.
Investor worries about the health of mid-sized lenders deepened in recent days following the collapse of First Republic Bank and PacWest’s announcement that it was exploring strategic options to bolster its finances, which triggered a brutal sell-off.
The whiplash in regional banks’ shares underscores ongoing investor uncertainty over the health of the sector as market sentiment has started to over-run balance sheet fundamentals.
Friday’s jump could be painful for some investors that have bet heavily against regional bank shares.
“The regional bank group has completely disconnected from the fundamentals during this week’s sell-off,” Art Hogan, B. Riley Wealth chief market strategist, wrote in a note to investors.
JP Morgan analysts, led by Steven Alexopoulos, upgraded their ratings of several regional banks on Friday, including Western Alliance, Comerica and Zions Bancorp, saying that these stocks appear “substantially mispriced” after seeing “intense shorting/selling pressure.”
“With sentiment very negative and a potential sector re-rating on the horizon, we now move to the middle of the boat and adopt a neutral sector stance,” the analysts wrote in a note to investors.
Western Alliance and Zion Bancorp gained 38% and 18%, respectively. Comerica Inc rose 15%, Keycorp was up nearly 10%, First Horizon Corp added 5%, and Truist Financial Corp grew 7%.
The KBW Regional Banking Index which has plunged about 31% this year, was 3.3% higher.
But some investors said the rebound may not signal a long-term shift in sentiment and could be temporary.