PacWest Leads Rally in Regional Banks After Slashing Dividend

(Bloomberg) — PacWest Bancorp rose as much as 16% in premarket trading Monday, extending Friday’s brisk rebound and leading gains in US regional banks, after it slashed its quarterly dividend and said business remains “sound.”

Most Read from Bloomberg

Other regional lenders Western Alliance Bancorp and Zions Bancorp also rallied as they recovered from a selloff fueled by worries over the health of the financial system and the recent collapse of several lenders. Western Alliance and Zions both rose 4%, while PacWest’s gain followed an 82% jump on Friday.

Four regional banks have collapsed since turmoil started in early March on fears that unrealized losses on bond investments might push some lenders to the brink. High exposure to real estate lending and sinking deposits have also been in focus.

The KBW Regional Banking Index dropped 8% last week, the worst weekly decline since mid-March, when the crisis started. The S&P 500 financials index is on the verge of falling back below its 2007 peak. If it were to fall through that barrier now, it would be an ominous signal for the broader stock market, said hedge-fund manager Jim Roppel, founder of Roppel Capital Management.

Been Hedging Around the Pivot? Don’t Stop Now: John Authers

Possible positive catalysts for US banks shares include the Federal Deposit Insurance Corporation expanding the deposit insurance scheme and the Fed discussing the road map for ending quantitative tightening, Morgan Stanley analysts wrote in a note Monday.

Still, there are doubts over the stability of these banks. Rating agency Fitch has placed the PacWest ‘Rating Watch Negative,’ citing the impact of a potential transaction from the strategic review it is undertaking and “the uncertainty regarding the bank’s strategic direction.”

(Updates share prices)