PacWest Bancorp explores strategic options, including sale, after 49% share price drop
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. The move comes just days after regulators seized First Republic Bank and JPMorgan agreed to buy its deposits and most of its assets. 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. The sale of First Republic Bank and other news has not caused any unusual deposit flows for the bank. 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. In addition, the company recently paid down $1bn of borrowings with our excess liquidity. Our cash reserves and liquid assets remain robust and surpass our uninsured deposits by 188%.
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. Powell has pushed back at market calls for Fed rate cuts later this year, stating that low interest rates should be rare. The US regional banking system is also at risk, according to Bill Ackman, CEO of the New York hedge fund Pershing Square.
Toronto-Dominion Bank (TD) and Tennessee-based First Horizon (FHN) have called off their $13.4bn merger, citing regulatory concerns. The deal faced a shifting bank environment. FHN stock tanked 33% while TD stock rose modestly. 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. 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. Many regional banks have had their balance sheets negatively impacted by the higher rates. 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.
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