PacWest Bancorp explores strategic options, including possible sale, as regional banks struggle amid banking crisis
PacWest Bancorp, a regional bank based in Beverly Hills, has been struggling since the collapse of three rival California-based lenders and is now exploring strategic options, including a possible sale, according to several sources.[0] PacWest’s shares have fallen by 85% since the beginning of March and declined by 44% in late New York trading on Tuesday.[1] The bank’s stock price plummeted over 25% on Tuesday alone, which was worse than other regional banks. Investors have fled regional bank stocks after JPMorgan Chase acquired the failed First Republic Bank from regulators last weekend. Three of the four largest banking failures in the US have occurred in the past two months, leading to fears of a broader contagion.[2]
PacWest is considering its options after the bank’s financial reports suggest that while deposits declined significantly through the end of Q1 2023, there was a roughly equivalent shift from uninsured to insured deposits within those figures.[3] PacWest's estimate of uninsured deposits as of December 31, 2022, was $17.8bn against $34.3bn in total deposits resulting in uninsured deposits representing 52% of total deposits. In comparison, at the end of the first quarter, uninsured deposits were estimated at $8.1 billion against $28.6 billion in total deposits resulting in a 28% figure.
The bank’s proportion of uninsured deposits is now roughly in line with, or even below, the respective proportions at most typical community banks.[3] Before the banking crisis, PacWest stood out as an exception in terms of uninsured deposits. However, due to significant changes, the institution is now not significantly different from any other randomly chosen institution in this regard.[3]
An outright sale has been hindered because there aren’t many potential buyers interested in the entire bank, which comprises a community lender called Pacific Western Bank and some commercial and consumer lending businesses.[1] A potential buyer would also have to potentially book a big loss marking down some of its loans.[1]
The prices of stocks in various local banks across the United States have significantly decreased due to apprehensions among investors that the financial market's banking crisis has not yet come to an end.[4] PacWest Bancorp experienced a 2% decline, while Western Alliance saw a 4.4% drop. Zions ended the day with a 5.3% decrease and Comerica fell by 4.4%.[5] The weekly decline of the KBW Regional Banking Index was further extended to 8.9%.[5]
Over the past week, there has been a noticeable increase in bearish wagers on regional banks, potentially contributing to the downward trend in their stock prices.[6] Data collected by S3 Partners shows that the percentage of shares outstanding in the SPDR S&P Regional Banking ETF that were subject to short interest increased from 74% to 96% in a week.[5]
On Wednesday, the Federal Reserve raised interest rates by a quarter-point and indicated that it may be done with rate hikes.[7] The data on futures pricing suggests that traders anticipate the Fed to maintain current rates for the short run, but there is a possibility that they may reduce rates in September.[7] However, the probability of a pause in the rate hike in lieu of the banking crisis is at 85% at the moment, slightly easing up borrowing, which has become pretty expensive over the last 14 interest rate hikes.[8]
0. “Pacific Western Bank ponders possible sale” The Real Deal, 3 May. 2023, https://therealdeal.com/2023/05/03/pacific-western-bank-ponders-possible-sale/
1. “PacWest is considering a sale after its shares sank 85% since March amid the banking industry’s turmoil” Fortune, 3 May. 2023, https://fortune.com/2023/05/03/pacwest-is-considering-a-sale-after-its-shares-sank-85-since-march-amid-the-banking-industrys-turmoil/
2. “Fears grow for another American bank as shares in PacWest tumble” The Times, 3 May. 2023, https://www.thetimes.co.uk/article/fears-grow-for-another-american-bank-as-shares-in-pacwest-tumble-p8s67q6mp
3. “PacWest Bancorp Stock: The Forest And The Trees” Seeking Alpha, 3 May. 2023, https://seekingalpha.com/article/4599319-pacwest-bancorp-the-forest-and-the-trees
4. “US bank shares slide after First Republic rescue” BBC, 2 May. 2023, https://www.bbc.com/news/business-65461930
5. “US Regional Banks Slump as Rout Deepens on First Republic Flop” Yahoo Finance, 3 May. 2023, https://finance.yahoo.com/news/us-regional-banks-slump-rout-092608916.html
6. “Short Sellers Tightened Grip on Regional Banks in Runup to Rout” Bloomberg, 2 May. 2023, https://www.bloomberg.com/news/articles/2023-05-02/short-sellers-tightened-grip-on-regional-banks-in-runup-to-rout
7. “Regional Bank PacWest Is Reportedly Weighing a Sale. What Should Investors Do?” The Motley Fool, 3 May. 2023, https://www.fool.com/investing/2023/05/03/bank-pacwest-reportedly-weighing-sale-what-to-do
8. “Bitcoin prices inches closer to $30,000 as Fed says this hours after PacWest Bancorp wrecks” FXStreet, 4 May. 2023, https://www.fxstreet.com/cryptocurrencies/news/bitcoin-prices-inches-closer-to-30-000-as-fed-says-this-hours-after-pacwest-bancorp-wrecks-202305040014
