PacWest Bancorp, a midsize lender that has come under pressure after three of its largest peers failed this year, issued a statement overnight after its share price plunged, saying it was still looking to sell assets to shore up your finances.
PacWest said it was planning to sell a $2.7 billion loan portfolio and was reviewing other options after being contacted by potential “partners and investors”. The bank also said it had not seen an “out of the ordinary” deposit outflow in recent days. Deposits stood at $28 billion as of Tuesday, compared with about $29 billion it had at the end of April.
The bank published updated details after its shares plunged more than 50 percent in late trading on Wednesday. That fall came later Bloomberg News reported that the bank was working with advisers to explore options, including a sale.
In early trading Thursday, Los Angeles-based PacWest was down more than 40 percent. Western Alliance, a Phoenix-based regional lender, fell more than 20 percent.
Western Alliance also tried to reassure investors, saying Wednesday night that it was not seeing deposit outflows. As of Tuesday, the bank said, deposits stood at $48.8 billion, compared with $47.6 billion at the end of March.
The stock swings are the latest development in the spiraling crisis of smaller banks that has been marked by the failures of Silicon Valley Bank and Signature Bank in March and the seizure and sale of First Republic Bank on Monday.
After the sale of First Republic to JPMorgan Chase, the relative calm in the markets that day led some to say that the acute phase of the regional banking crisis had passed. Jamie Dimon, chief executive of JPMorgan, the country’s largest bank, said on a call with analysts that “this part of the crisis is over.” Jerome H. Powell, chairman of the Federal Reserve, said at a news conference Wednesday after the central bank announced another interest rate hike that the three failed banks formed the “heart” of the crisis.
But investors seem skeptical, skittish about any news that might be hinting at the next potential regional bank to fail, leading to extremely volatile trading sessions.
And investors who bet on falling share prices, known as short sellers, have made big profits on shares of regional banks. Since the collapse of Silicon Valley Bank in March, the return on First Republic shares sold short has been more than 200 percent, according to market data firm S3 partners. Some investors are recycling the proceeds from those deals to set their sights on other regional banks, such as PacWest, Western Alliance, Zions and others. Intense activity from short sellers can put downward pressure on a company’s share price.
Stock prices are an imperfect measure of a lender’s health, but a growing challenge for bankers and regulators is how to prevent turmoil in the stock market from spilling over into lenders’ day-to-day business, which that could scare away depositors.
Resolving investor fears is complicated. With stock prices falling and interest rates rising, any attempt to raise capital by selling shares would be costly and damaging to a bank’s existing investors. Selling a bank’s assets to raise funds, including low-interest loans and securities, would result in losses that could otherwise be avoided.
Amid renewed turmoil in regional bank stocks, First Horizon, a Memphis, Tennessee-based regional lender, and TD Bank, one of Canada’s largest lenders, on Thursday they terminated their agreement to merge, citing uncertainty over regulatory approval. The deal was originally announced in early 2022 and was mired in regulatory delays before Silicon Valley Bank collapsed. TD will pay a breakout fee of $200 million to First Horizon, whose shares fell 35 percent in early trading.
PacWest has been a particular concern for investors since concerns about small banks surfaced this year. Like the failed Silicon Valley Bank, PacWest had a large number of unsecured depositors and does a lot of business with the tech industry. The Federal Deposit Insurance Corporation insures up to $250,000 in deposits, and that has left banks with a large chunk of uninsured deposits vulnerable to runs if customers fear they won’t have access to their deposits and rush to withdraw their money.
Days before it failed, for example, First Republic reported withdrawals of more than $100 billion in deposits in just a few weeks.
But PacWest has tried to address the worst of those fears. On Wednesday, it said insurance covered 75 percent of its deposits, up from 71 percent at the end of March. The bank had access to cash and other funds worth almost twice the amount of its remaining uninsured deposits.
PacWest said in March that it had raised $1.4 billion from an investment firm and about $15 billion from various federal programs, including those set up after the demise of Silicon Valley Bank and Signature Bank. At the time, PacWest also said that it had considered selling a stake in itself, but decided that the depressed value of shares in regional banks meant that such a move “would not be prudent.”
Since then, its shares have fallen more than 60 percent.
bernard warner contributed by informing