PacWest Moves to Calm Market After Rout, Says Deposits Rose

(Bloomberg) — PacWest Bancorp said deposits have increased since March and confirmed it’s in talks with several potential investors, seeking to calm markets after a 60% stock rout that made it the new focal point of concern over the health of US regional lenders.

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“The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news,” PacWest said in a statement dated Wednesday. “Our cash and available liquidity remains solid and exceeded our uninsured deposits.”

Shares in the bank plummeted in after-hours US trading on Wednesday after Bloomberg News reported it was considering strategic options including a sale. The sharp moves, which also dragged down an ETF tracking regional lenders to its lowest level since 2020, underscored renewed investor angst over a sector that has been rocked by bank failures and deposit outflows since early March.

“Recently, the company has been approached by several potential partners and investors – discussions are ongoing,” PacWest said. “The company will continue to evaluate all options to maximize shareholder value.”

The selloff came just hours after Federal Reserve Chair Jerome Powell said authorities were closer to containing the turmoil that’s claimed four lenders this year. The government seizure and sale of First Republic Bank to JPMorgan Chase & Co. was “an important step toward drawing a line under that period of severe stress” for regional lenders, Powell said.

Market watchers were skeptical PacWest’s comments would ease concern about the sector.

The bank’s statement “offers little in the way of confidence to the market,” said Tim Waterer, chief market analyst at KCM Trade. “Despite the best efforts by Jerome Powell to calm the market, there is nothing to suggest that the banking crisis is at an end.”

PacWest has been considering a breakup or a capital raise, according to people familiar with the matter, who asked to not be identified discussing private information. While it is open to a sale, the company hasn’t started a formal auction process, the people said.

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, the people said. A potential buyer would also have to potentially book a big loss marking down some of its loans, the people added.

Under Fire

Smaller US lenders are facing a pinch as rising interest rates lower the value of their longer-term investments while increasing the cost of funding. That’s spurring depositors to move cash into higher-yielding money market funds. Investors also worry modern technology allows clients to pull money rapidly out of struggling institutions, funneling deposits instead to the biggest banks which have so-far been insulated from the turbulence.

Critics of the banking system have called for the Federal Deposit Insurance Corp. to increase the insurance cap, which typically covers up to $250,000 on most accounts. While regulators are mulling a broadening of deposit insurance, no changes have yet been announced.

PacWest, which tumbled as much as 60% in after-hours trading before paring losses to about 52%, isn’t the only US regional bank under fire. Western Alliance Bancorp sank as much as 38%, while Comerica Inc. and Zions Bancorp fell more than 10% each.

Western Alliance also said Wednesday that it had seen no unusual deposit outflows and reaffirmed its guidance deposits would rise quarter-over-quarter.

Financial heavyweights including hedge fund billionaire Bill Ackman and former Federal Reserve Bank of Dallas President Robert Kaplan are among those warning of more banking stress to come. Speaking before PacWest’s statement, Ackman said he thought the whole US regional banking system is at risk.

“Confidence in a financial institution is built over decades and destroyed in days,” Ackman, chief executive officer of Pershing Square, said on Twitter. “As each domino falls, the next weakest bank begins to wobble.”

Unrealized Losses

On Wednesday, the Federal Reserve again raised rates by 25 basis points. While Powell hinted this could be the last increase, he also left the door open for officials to keep raising borrowing costs if inflation remains sticky. He also pushed back strongly against market expectations that the Fed will be cutting rates by year-end.

A year of interest-rate hikes has driven unrealized losses for banks to an estimated $1.84 trillion, with trouble in commercial real estate increasing the pain. These stresses are adding to the market focus on smaller banks, which typically have fewer resources to defend themselves.

First Republic Bank, acquired by JPMorgan on Monday in a government-led deal, became the fourth US lender to collapse this year, following Silvergate Capital Corp., SVB Financial Group’s Silicon Valley Bank and Signature Bank.

–With assistance from Jun Luo.

(Updates to add quote in seventh paragraph)