Midsize lender PacWest Bancorp has been under pressure after three of its largest peers collapsed this year, but continues to consider selling assets to strengthen its finances after its share price plunged. issued a statement overnight that it was
PacWest said it plans to sell its $2.7 billion loan portfolio and is considering other options after being approached by potential investors. “Partners and Investors” The bank also said it had not seen an “abnormal” outflow of deposits in recent days. Deposits stood at $28 billion on Tuesday, up from about $29 billion in late April.
The bank released the latest details after shares plunged more than 50% in late trading on Wednesday.that drop came after bloomberg news reported that the bank is working with advisers to explore options including a sale.
In Thursday’s pre-market trading, PacWest was down about 37%. Two other regional lenders, Western Alliance and Zions Bancorp, fell 19% and 10% respectively.
The volatility in stocks is the latest in a spiraling crisis of these smaller banks punctuated by the failures of Silicon Valley Bank and Signature Bank in March and the foreclosure and sale of First Republic Bank this week.
Los Angeles-based PacWest has already lost more than 70% of its value this year. Investors have been cautious about news that could suggest that a potential local bank is going bankrupt next, making the trading session very volatile.
Investors who bet on falling stock prices, known as short-selling, are making huge profits on regional bank stocks. According to his S3 partner, a market-data firm, since the Silicon Valley Bank collapse in March, returns on short shares in First Republic have surpassed 200% for him. Some investors are reusing profits from these deals to look to other local banks such as PacWest, Western Alliance and Zion. Strong short-selling activity can put downward pressure on a company’s share price.
Stock prices are an imperfect measure of a lender’s health, but a growing challenge for banks and regulators is how to prevent stock market turmoil from spilling over into lenders’ day-to-day operations.
It’s hard to allay investors’ worries. With stock prices crashing and interest rates rising, trying to raise capital by selling shares would be costly and hurt the bank’s existing investors. Raising funds by selling bank assets, including low-interest loans and securities, locks in losses that could otherwise have been avoided.
PacWest has been a concern for investors since concerns about smaller banks first surfaced earlier this year. Like the failed Silicon Valley Bank, PacWest has a large number of unsecured depositors and many deals with the tech industry. The Federal Deposit Insurance Corporation insures deposits of up to $250,000, which has left banks with a large proportion of uninsured deposits and hastily withdrawn money, fearing customers will lose access to their deposits. If so, you are at risk of collection.
For example, days before its bankruptcy, First Republic reported over $100 billion in deposit outflows in just a few weeks.
But PacWest tried to address the worst of these concerns.Last week, banks said deposit outflows had begun to reverse and insurance had nearly covered Three quarters of total deposits As of April 24, it is up from just 48% at the end of December.
PacWest announced in March that it had raised $1.4 billion from investment firms and about $15 billion from various federal programs. At the time, Pacwest said it was also considering selling its shares, but decided that the then-slumped value of regional bank stocks meant such a move was “unwise.”
Bernhard Warner Reports Contributed
