Wrapup 1: PacWest weighs its options, sending bank shares in a tailspin
04/05/2023 24:32
By Anirban Sen and Noel Randewich
May 3 (Reuters) - PacWest Bancorp PACW.O is exploring
strategic options, a source familiar with the matter said,
sending the shares of the bank and several other U.S. regional
lenders tumbling in after-market trading.
The dramatic fall in shares -- PacWest fell nearly 60% --
underscores how investors remain unconvinced about the health of
regional banks despite regulators' efforts to call an end to the
banking crisis that started with the collapse of Silicon Valley
Bank and Signature Bank in March.
The sector jitters come after a period of relative calm, and
could tighten credit availability across America and hurt
growth.
"There's a major problem here. When you lose confidence in
the banks, that equals a whole lot of trouble," said Dennis
Dick, a trader at Triple D Trading in Ontario, Canada. "I
haven't felt this scared since the financial crisis."
"This is accelerating, and it's serious," Dick said.
A PacWest spokesperson did not immediately respond to a
request for comment.
PacWest stock has lost almost 90% of its value since the
regional banking crisis started on March 8. Other regional
lenders, whose shares have been under pressure this week, also
fell, giving up gains from earlier in the day.
Western Alliance Bank WAL.N fell 30%. Zion Bancorporation
ZION.O , Comerica CMA.N and First Horizon FHN.N each
slumped more than 7% and the SPDR S&P Regional Banking ETF
KRE.P dropped 5%.
BANKING CRISIS
The crisis in U.S. regional banks began in March, when a
rapid social media-driven run on Silicon Valley Bank led to its
abrupt closure and sent depositors across regional banks fleeing
to the safety of the largest institutions. The crisis forced
regulators to step in with emergency measures. The markets
appeared to calm by late last month.
Last weekend, however, First Republic Bank, which had been
swept up in the bank run, failed and was sold to JPMorgan Chase
& Co JPM.N in a weekend auction conducted by the Federal
Deposit Insurance Corp (FDIC).
Although First Republic, a California-based lender to the
wealthy, became the third bank failure since March, regulators
hoped its sale to JPMorgan would draw a line under the crisis.
Instead, the deal renewed fears in the market. Some
investors warned that the crisis was not over, and hedge funds
bet other dominos may still fall.
Some executives have said that a bank trying to raise
capital during a crisis could be seen as a sign of weakness and
spook investors instead of boosting confidence in the
institution.
Major banks and private equity firms have balked at offering
capital infusions to regional lenders without a government
backstop because of concerns about booking losses on their
low-yielding assets such as loans and investment portfolios.
Shares of several regional banks fell after First Republic
deal, which was announced on Monday, with the KBW Regional
Banking Index .KRX closing on Wednesday at its lowest level
since December 2020.
The cost of insuring against further losses in regional U.S.
bank stocks stood on Wednesday near a one-month high in options
markets.
Earlier on Wednesday, U.S. Federal Reserve Chair Jerome
Powell reiterated that the country's banking system was
resilient while delivering another 25 basis point rate hike.
STRATEGIC OPTIONS
Based in Los Angeles, PacWest has branches in California as
well as Durham, North Carolina and Denver, Colorado. In its
first-quarter earnings last week, its deposits had stabilized
after some customers pulled their money.
On Wednesday a source said the lender was looking at options
that include a potential sale or capital raise.
The bank, one of the top 100 U.S. banks, is hoping to avoid
the fate of others that were taken over by U.S. regulators by
proactively finding a solution to bolster its finances, the
source said, asking not to be identified because the matter is
confidential.
The effort comes after the bank raised $1.4 billion from
investment firm Atlas SP Partners in late March.
The regional bank selloff indicates investor unease over
their outlook, Brown Brothers Harriman analysts wrote in a note
earlier on Wednesday.
"Because that outlook is still unknown, markets did what
they always do in these situations and assumed the worst," the
analysts said.
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(Reporting by Medha Singh in Bengaluru and by Noel Randewich in
Oakland, Calif., additional reporting by Niket Nishant and
Chibuike Oguh; Editing by Dhanya Ann Thoppil, Sriraj Kalluvila,
Deepa Babington, David Gregorio and Anna Driver)
((Medha.Singh@thomsonreuters.com; +91 80 6210 0592; Twitter: https://twitter.com/medhasinghs;))