HomeUS NEWSPacWest shares crumble as Wall Street shuns midsize banks
PacWest shares crumble as Wall Street shuns midsize banks
May 4, 2023
In what is by now a familiar pattern, the fate of another regional lender hangs in the balance as investors bail from the sector following the sudden collapse of three prominent banks in a matter of weeks.
Shares of PacWest Bancorp crumbled after the close of trading on Wednesday, diving 55% to $2.88 amid a report by Bloomberg News that the $44 billion bank is weighing its strategic options, including a possible sale. The market drop followed a 28% plunge in Los Angeles-based PacWest’s stock price the previous day.
PacWest, whose shares are down 78% over the last three months, has hired a financial adviser and is also considering a breakup or trying to raise capital, according to Bloomberg.
Wednesday night, Pacific time, PacWest issued a statement saying in part that, “as previously announced” it has “explored strategic asset sales” and has recently “been approached by several potential partners and investors – discussions are ongoing.”
Wall Street has grown increasingly wary of midsize lenders since the March 10 collapse of Silicon Valley Bank (SVB) and the failure only days later of Signature Bank after depositors rushed to withdraw their money.
As investors soured on $229 billion First Republic, federal financial regulators were forced to arrange a shotgun marriage with JPMorgan Chase, which agreed this week to buy most of the company’s assets.
In announcing the deal on Monday, JPMorgan CEO Jamie Dimon said that absorbing First Republic would help stabilize the banking industry, while warning that the turmoil affecting midsize and small lenders could continue.
Other regional bank stock also continued to reel on Wednesday. Western Alliance sank 4% before tumbling another 29% in after-hours trading, while Comerica and Zions Bancorporation also fell sharply. The KBW regional bank index has lost 29% this year.
Although PacWest’s stock has tanked in recent weeks, the company hasn’t faced the kind of massive capital flight that crippled Silicon Valley Bank, noted analyst Adam Crisafulli of Vital Knowledge. In reporting its first-quarter earnings on April 25, PacWest said its total deposits had increased $1.1 billion to $28.2 billion.
PacWest also has far less in uninsured deposits — client funds in excess of the $250,000 account cap guaranteed by the U.S. — than SVB did when it capsized in March. CEO Paul Taylor noted last month that the bank’s total insured deposits had risen from 48% of total deposits at the end of 2022 to 71% as of March 31.
“It’s important to remember that Silicon Valley and First Republic were unique, and investors shouldn’t simply extrapolate what happened to them to the whole regional landscape,” Crisafulli said in a report.