[ad_1]
PacWest Bancorp, a midsize lender that has been under pressure after three of its larger peers failed this year, issued a statement overnight, after its share price suddenly dropped, saying it was continuing to look to sell assets to shore up its finances.
PacWest said that it was planning to sell a $2.7 billion loan portfolio, and that it was reviewing other options after being approached by potential “partners and investors.” The bank also said it had not seen an “out-of-the-ordinary” outflow of deposits in recent days. Deposits stood at $28 billion as of Tuesday, compared with roughly $29 billion that it held in late April.
The bank released the updated details after its shares had plunged more than 50 percent in late trading on Wednesday. That drop came after Bloomberg News reported that the bank was working with advisers to explore options, including a sale.
In early trading on Thursday, PacWest, based in Los Angeles, was down more than 40 percent. Western Alliance, a regional lender based in Phoenix, fell more than 20 percent.
Western Alliance also tried to reassure investors, saying late on Wednesday 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 share swings are the latest development in the spiraling crisis for smaller banks that has been punctuated by the failures of Silicon Valley Bank and Signature Bank in March and the seizure and sale of First Republic Bank on Monday.
After First Republic was sold to JPMorgan Chase, the relative calm in markets that day led some to say that the acute phase of the regional banking crisis had passed. Jamie Dimon, the chief executive of JPMorgan, the nation’s largest bank, said on a call with analysts that “this part of the crisis is over.” Jerome H. Powell, the Federal Reserve chair, said on Wednesday at a news conference after the central bank announced another interest-rate increase that the three failed banks formed the “heart” of the crisis.
But investors appear skeptical, skittish about any news that could be hinting at the next potential regional bank to fall, making for extremely volatile trading sessions.
And investors who bet on share prices falling, known as short sellers, have made huge returns on regional banks’ stocks. Since the collapse of Silicon Valley Bank in March, the return on short-selling First Republic shares was more than 200 percent, according to the market data firm S3 partners. Some investors are recycling profits from those trades to set their sights on other regional banks, like PacWest, Western Alliance, Zions and others. Heavy activity by short sellers can exert downward pressure on a company’s share price.
Stock prices are an imperfect measure of a lender’s health, but an intensifying challenge for bankers and regulators is how to keep the turmoil in the stock market from spilling into lenders’ day-to-day businesses, potentially spooking depositors.
Resolving investors’ fears is tricky. With share prices beaten down and interest rates rising, any attempt to raise capital by selling stock would be costly and damaging to a bank’s existing investors. Selling a bank’s assets to raise funds, including loans and securities with low interest rates, would lock in losses that could otherwise be avoided.
Amid the renewed turmoil in regional banking stocks, First Horizon, a regional lender based in Memphis, Tenn., and TD Bank, one of Canada’s largest lenders, on Thursday ended their agreement to merge, citing uncertainty about regulatory approval. The deal was originally announced in early 2022 and had been mired in regulatory delays before the collapse of Silicon Valley Bank. TD will pay a $200 million breakup fee to First Horizon, whose stock fell 35 percent in early trading.
PacWest has been a particular worry for investors since the concerns about small banks emerged this year. Like the failed Silicon Valley Bank, PacWest had a large number of unsecured depositors and does a lot of business with the technology industry. The Federal Deposit Insurance Corporation insures up to $250,000 in deposits, and that has left banks with a large share of uninsured deposits vulnerable to runs if clients fear they won’t have access to their deposits and rush to pull their money out.
Days before it failed, for example, First Republic reported outflows of more than $100 billion in deposits over just a few weeks.
But PacWest has tried to address the worst of those fears. On Wednesday, it said that 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 nearly 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 it had considered selling a stake in itself, but decided that the depressed value for regional bank stocks meant that such a move “would not be prudent.”
Since then, its shares have fallen more than 60 percent
Bernhard Warner contributed reporting
[ad_2]
Source link