PacWest Bancorp, a Los Angeles-area lender, has suffered a 49% share price drop and halted trading on the back of exploring strategic options, including a sale.[0] The move comes just days after regulators seized First Republic Bank and JPMorgan agreed to buy its deposits and most of its assets.[0] PacWest is the latest US regional bank to seek a lifeline after First Republic Bank was sold to JP Morgan after talks over the weekend.[1] The sale of First Republic Bank and other news has not caused any unusual deposit flows for the bank.[2] Core customer deposits have increased since March 31, 2023, with total deposits totaling $28bn as of May 2, 2023, with insured deposits totaling 75% vs. 71% at quarter end and 73% as of April 24, 2023.[3] In addition, the company recently paid down $1bn of borrowings with our excess liquidity.[3] Our cash reserves and liquid assets remain robust and surpass our uninsured deposits by 188%.[4]
The Federal Reserve recently raised rates for the 10th consecutive time, with Fed chief Jerome Powell hinting at a pause, but not ruling out further tightening.[5] Powell has pushed back at market calls for Fed rate cuts later this year, stating that low interest rates should be rare.[6] The US regional banking system is also at risk, according to Bill Ackman, CEO of the New York hedge fund Pershing Square.[7]
Toronto-Dominion Bank (TD) and Tennessee-based First Horizon (FHN) have called off their $13.4bn merger, citing regulatory concerns.[8] The deal faced a shifting bank environment.[6] FHN stock tanked 33% while TD stock rose modestly.[9] Other regional bank shares have also suffered, with shares in the Dallas-headquartered Comerica and Zions Bancorporation falling by about 10% in after-hours trading and were down again in pre-market trading on Thursday.[7] Regional banks have a more significant influence on the American economy compared to the UK, as they are responsible for almost 50% of business and consumer loans.[7] Many regional banks have had their balance sheets negatively impacted by the higher rates.[10] At a time when loan demand was low, they invested the incoming funds in long-term government securities and loans that today are producing low returns.[4]
0. “U.S. stocks are falling as bank worries cloud over Fed optimism By Investing.com” Investing.com, 4 May. 2023, https://www.investing.com/news/stock-market-news/us-stocks-are-falling-as-bank-worries-cloud-over-fed-optimism-3073002
1. “PacWest, Western Alliance stocks continue to fall on banking uncertainties” Yahoo Finance, 4 May. 2023, https://finance.yahoo.com/video/pacwest-western-alliance-stocks-continue-191857465.html
2. “‘Something’s about to break’: Why Wall Street is still freaking out about banks” CNN, 4 May. 2023, https://www.cnn.com/2023/05/04/business/nightcap-banking-crisis-wall-street-analysis/index.html
3. “Pacific Western Bank Issues Update | Pacific Western Bank” PacWest Bancorp, 4 May. 2023, https://www.pacwestbancorp.com/news-market-data/news/news-details/2023/Pacific-Western-Bank-Issues-Update/default.aspx
4. “PacWest shares sink as bank explores asset sales” The Washington Post, 4 May. 2023, https://www.washingtonpost.com/business/2023/05/04/pacwest-bank-stock-drop/
5. “PacWest Tries to Calm Jittery Markets After 60% Stock Plunge” Yahoo Finance, 4 May. 2023, https://finance.yahoo.com/news/pacwest-moves-calm-market-60-053127958.html
6. “Dow Jones Futures Fall As PacWest Dives On Sale Report; Apple Earnings On Tap | Investor’s Business Daily” Investor’s Business Daily, 4 May. 2023, https://www.investors.com/market-trend/stock-market-today/dow-jones-futures-pacwest-update-pacw-dives-on-sale-report-apple-earnings
7. “Trading halted in shares of two more US lenders as fears of banking crisis mount” The Guardian, 4 May. 2023, https://www.theguardian.com/business/2023/may/04/shares-in-california-lender-pacwest-plummet-amid-fears-of-new-us-banking-crisis
8. “Bitcoin drops with stocks as analyst warns of banking crisis ‘endgame’” Cointelegraph, 4 May. 2023, https://cointelegraph.com/news/bitcoin-drops-with-stocks-as-analyst-warns-of-banking-crisis-endgame
9. “PacWest Bancorp Explores Options. Investors Hit Panic Button.” Investor’s Business Daily, 4 May. 2023, https://www.investors.com/news/pacwest-bancorp-explores-options-including-potential-sale-investors-hit-panic-button/
10. “Bank woes mount as investors bail from regional lenders” CBS News, 4 May. 2023, https://www.cbsnews.com/news/bank-stocks-today-pacwest-western-alliance-first-republic-silicon-valley-bank/