PacWest Bancorp Leads Regional Bank Shares Lower
PacWest leading the regional banks lower after a brief respite. The team of Goldman is saying this, in the near term, stress remains in the system with concern that weaker equity prices and wider credit spreads could lead to further deposit instability. Shnani Basak, they don't make it sound good, do they? They don't make it sound good and the market is following, John. When you look at PacWest shares, not only have they taken a real beating this year, they are trading at 26% of their book value. Banks trading below their book value, we know, are seen as burning money in the market, but when you look at their peers, Western Alliance, Zions, Comerica, all of those banks are trading at almost 60% or more of their book value. So significant differences here. I also want to talk for just a minute because obviously the stock lowered today after just a tiny little bump yesterday.
You could see that as short selling in addition to maybe a little bit of stability there. You have the bonds also trading very cheaply down to 42 cents on the dollar. The bond market volatility has been really significant in these banks. They were trading at 70 cents on the dollar early last week. So when you take a look at it, both the stock market and the bond markets are telling you that they're worried about these banks and where they're going from here, especially as we know, if things were to go really south, both the shareholders and the bondholders are pretty much wiped out in a scenario like that. Now we're not near that moment. We know that PacWest in particular is exploring strategic options, but those strategic options as we know are what put them on a ratings watch over at Fitch.
So the strategic direction ahead until they get it sorted out, it is very hard for both the market as well as other counterparties to get comfortable with what's going on with these banks. Shnali, this name right now is a 570. Last Monday it was a double digit name of $10. In early February it was trading close to 30. What phase of this process, Shnali, are we in right now for names like this one? Yeah, it's really hard to know. It was a lot clearer for the first set of banks, wasn't it? We knew that the pain came fast and hard, but even with deposits showing to stabilize at some of these firms, these longer bleeding existential problems, and you see it, by the way, you want to hear, John, just how negative the banking system, the markets are on the banking system? Only two stocks in the KBW index are up on the year. So every other stock is in the red here.
It's hard to get them out of that hole, especially when you're looking at a key corp, Xions, Western Alliance, all have different exposures to the market, some of which, whether you're looking at auto loans or commercial real estate, the market is still worried about. These names trading lower in the first eight minutes of the session. Shnali, thank you. They had been trading lower through the whole of this morning in the pre-market. Clear Harpers Aaron Cannon sing more pain as the banks try to resolve their issues running this. The medicine may have a bit of taste. In order to reduce risk, banks are poised to tighten lending standards in the coming months, further reducing credit availability.
This is hardly good news for an economy already teetering on the edge of recession. Aaron, I'm pleased to say, joined us right now. Aaron, here's the problem. The stock market's up on the year on the NASDAQ by something like 10% plus on the S&P 500 approaching double digit gains for the year. Aaron, what's going right? Well, the earnings season that we just essentially have almost completely completed has looked okay. Estimates were about for 7% to 8% year over year decline in earnings, and they came in at minus three. The market has no reason to shudder on the heels of that news.
The employment numbers remain really strong. The consumer looks strong. Inflation is decelerating. The narrative that we're going to certainly experience a hard landing isn't really cooked into the book, certainly on the equity side. I think the bonds side is with the move index, the volatility index for bonds still very elevated and frankly yields well below those levels seen in early March, which suggests that the bond market is almost a little more concerned than the equity market about the prospects of a recession and perhaps the fallout from banks. Let's talk about both those pieces. On earnings, Savita Subramani of Bank of America said something similar.
Q1 is tracking a 5% EPSB surprise ratios well above the average. Guidance is pretty strong. On stock, Aaron, this is something that Krishnamati of Lafayette said about 20 minutes ago. He said, we live in a high nominal GDP world. That's not going to change in a material way in the coming months and quarters. He thinks the pain trade for equities is still higher. Any pushback against that? Well, when you're trading at 19 times earnings and you have unemployment that is perhaps the lowest that we're going to see in this cycle, you have the Fed on hold, but perhaps raising again, it just seems as though the risk reward, and that's what we're always thinking about, of higher equities from here is not all that compelling.
So I think that when you look at the data, you look at net long positions, you look at sentiment indicators, they are low. So I think Krishnamati has a good point that we're sort of climbing this wall of worry, but earnings growth is not accelerating. And so you'd be buying in at higher multiples if you continue to trade this up to that sort of 4,500 level from where we are right now. That disconnect that you identified between the bond market, the Fed and the equity market, Marco Kalanovic, a JP Morgan thinks that reconciles, closes at the expense of equities. Is that something that resonates with you then? Well it certainly feels that way. And I say that because the good news is, employment is strong, the consumer on the margin has remained strong, although we're seeing some signs of cracking when you look at the rise in credit card rates and the rise in revolving lines of credit, the delinquencies on the auto loan front. But those chickens may not come home to roost until maybe later this year rather than earlier.
And so the Fed may not cut until the latter part of this year, maybe the fourth quarter into early 2024. History would suggest markets do not bottom until the Fed cuts after a tightening cycle. And so I think perhaps my friend over at JP Morgan has a point. This is something we discussed on the program just yesterday. Can you really price in the recovery to a recession we haven't had yet? Yeah, I mean I think that's a challenge. The average cycle would suggest that there's odds of a 12.5% recession, 12.
5% odds of recession every year because we have a recession once every, call it, eight years. So even if you think there's sort of three times the likelihood of a recession this year, it still suggests that the odds are we don't have one. And so that's why we're sort of in the soft landing camp. I mean our debt to GDP levels are high, fiscal stimulus is coming off from the COVID period somewhat significantly. We have a debt ceiling debate that is roaring with no real end there in sight. And so the uncertainty factor is rising on that front. I mean I think that the risks of a recession are certainly more than that 12.
5% average level, but are we in a hard landing camp here at Clear Harbor? Not right now at this moment.
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