PacWest Bancorp fell nearly 42% before Thursday’s trading halt, prompting another day of selling in regional bank stocks as investors tried to assess the smaller company’s latest news.
On Wednesday evening, Pacwest (Dictor: PACW ) said in a statement that its deposits were increasing. “Customer core deposits increased to $28 billion as of March 31, 2023, with insured deposits totaling 75% as of May 2, 2023 and 71% as of quarter-end and 73% as of April 24, 2023,” PacWest said in a statement.
Shares of the Beverly Hills, Calif.-based bank fell 37% on Monday after JPMorgan Chase swooped in to buy First Republic, another troubled regional bank. PacWest’s report followed further declines in the bank’s share price, which plunged 55% in after-hours trading after Bloomberg News reported that it was weighing strategic options, including a bank sale.
If PacWest stock closes at these levels, it would be the largest percentage decline on record and a low for the stock, according to Dow Jones market data.
Bawest said it is in talks with shareholders and investors and talks are ongoing.
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“Recently, the company has been approached by several potential partners and investors – discussions are ongoing. The company will continue to evaluate all options to maximize shareholder value,” the lender said.
Additionally, the company paid off $1 billion in debt with its excess liquidity and its cash and available liquidity is solid and exceeds its uninsured deposits, which stood at 188% as of May 2.
Backwest was one of the most stressed banks after the collapse of Silicon Valley Bank. Since then, banks with large uninsured deposits or high-risk loan books have seen a run on deposits.
DA Davidson analyst Gary Tenner said PacWest shares were “not trading on fundamentals based on market fears.” He downgraded the stock to neutral from buy. RBC Capital Markets analysts maintained their outperform rating on PacWest following what they described as “supportive.”
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Shares of other regional lenders were also lower on Thursday. On top of concerns about PacWest, banks reacted to news Wednesday that the Federal Reserve raised interest rates for the tenth time this cycle. High interest rates put pressure on banks by raising borrowing costs, putting pressure on customers and limiting the number of loan applicants.
The SPRD S&P Regional Bank Exchange-Traded Fund (KRE) fell 4.9% on Thursday and is at its lowest close since October 2020. S&P 500
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In comparison, it decreased by 0.3%.
Western Alliance Bancorp (WAL), down 16%, issued a statement Wednesday saying it had not experienced unusual deposit outflows in recent days and that its capital base remained strong. Its shares fell 4.4% on Wednesday.
Comerica (CMA) fell 6.7%, and Valley National
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(VLY) dropped 5.9% of both shares sold earlier in the week.
“We’re running out of time to fix this problem,” said activist investor Bill Ackman.
“How many more unnecessary bank failures do we have to see before the FDIC, the US Treasury and our government wake up?” he said on Twitter Late Wednesday. “Trust in a financial institution can be built up over decades and destroyed in days. As each domino falls, the next weakest bank begins to falter,” Ackman said.
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Ackman is not alone in voicing this belief. UBS analyst Erika Najarian wrote in a research note Thursday that a change in deposit insurance “should be considered.”
“We wonder if it’s time for the Treasury and the Fed to step up and create some sort of backstop through the Exchange Stabilization Fund (ESF) to stop the cascade before the market actually causes more bank failures. An act of Congress would make deposit limits permanent,” Najarian said.
Write to Angela Palumbo at angela[email protected] and Brian Swint at [email protected]
