Bank woes mount as investors bail from regional lenders

The future of PacWest Bancorp hangs in the balance as investors pull back from regional lenders following the sudden collapse of three prominent banks in a matter of weeks. 

Shares of the $44 billion bank continued to slide Thursday, tumbling 60% to an all-time low of $2.57 and with trading briefly halted due to volatility. The latest dive in the stock, which has fallen 89% this year, followed a report by Bloomberg News on Wednesday that PacWest is weighing its strategic options, including a possible sale. 

In a statement issued late Wednesday, PacWest confirmed that it has “explored strategic asset sales” and has recently “been approached by several potential partners and investors.” Those talks continue, the company added.

Although PacWest’s stock has tanked in recent weeks, the company hasn’t faced the kind of massive capital flight that crippled Silicon Valley Bank, noted analyst Adam Crisafulli of Vital Knowledge. In reporting its first-quarter earnings on April 25, PacWest said its total deposits had increased $1.1 billion to $28.2 billion. 

PacWest also has far less in uninsured deposits — client funds in excess of the $250,000 account cap guaranteed by the U.S. — than SVB did when it capsized in March. CEO Paul Taylor noted last month that the bank’s total insured deposits had risen from 48% of total deposits at the end of 2022 to 71% as of March 31. 

“It’s important to remember that Silicon Valley and First Republic were unique, and investors shouldn’t simply extrapolate what happened to them to the whole regional landscape,” Crisafulli said in a report.

Other banks under pressure

Wall Street has grown increasingly wary of midsize lenders since the March 10 collapse of Silicon Valley Bank (SVB) and the failure only days later of Signature Bank after depositors rushed to withdraw their money. 

Shares of Western Alliance Bancorporation, a $65 billion lender based in Phoenix, plunged 58% Thursday even as it sought to reassure investors that its financial position remains solid. The company said late Wednesday that it hasn’t experienced unusual deposit outflows amid the turbulence buffeting the banking sector, noting that its deposits have risen $1.2 billion this quarter to $48.8 billion. As of May 2, 74% of its total deposits were insured.

As investors soured on $229 billion First Republic, federal financial regulators were forced to arrange a shotgun marriage with JPMorgan Chase, which agreed this week to buy most of the company’s assets.

In announcing the deal on Monday, JPMorgan CEO Jamie Dimon said that absorbing First Republic would help stabilize the banking industry, while warning that the turmoil affecting midsize and small lenders could continue. 

Federal Reserve Chair Jerome Powell, speaking Wednesday after the central bank moved to hike its benchmark rate for a 10th consecutive time, expressed confidence in the U.S. banking industry, saying it remains “sound and resilient.”