Topline
PacWest Bancorp.’s share price plummeted more than 50% in after-hours trading Wednesday after Bloomberg reported the bank is considering a sale, following the collapse of several other regional banks squeezed in response to the Federal Reserve’s increasingly controversial rate hike push.
PacWest Bancorp.’s stock crashed Wednesday afternoon, prompting concerns it might become the latest … [+]
Key Facts
Internal discussions have taken place at the Beverly Hills-based firm about a potential sale, but no decisions have been made, according to Bloomberg.
The bank is also reportedly exploring a breakup or a plan to raise capital to stay afloat.
PacWest’s stock declined about 2% on Wednesday to close at $6.42, before freefalling nearly 58% to $2.70 in extended trading following the Bloomberg report—shares of PacWest previously declined 26.6% on Tuesday.
PacWest did not immediately respond to a request for comment from Forbes.
Key Background
Federal Reserve Chairman Jerome Powell announced Wednesday the central bank would raise interest rates another 25 basis points as part of his plan to cool inflation. The hike puts the federal funds rate—the borrowing rate for commercial banks—between 5% and 5.25%, which is the highest since September 2007. The latest rate hike was the most contentious yet, since inflation has slowed significantly and the rate increases have been blamed for causing the collapse of regional banks. Firms like First Republic Bank, Silicon Valley Bank and Signature Bank all failed recently after clients withdrew money en masse, in social media-driven bank runs linked to the rate hikes. Many regional banks like Silicon Valley Bank relied on deposits into high-dollar accounts over the past few years, which the firms then invested in securities like U.S. Treasuries. But Treasuries—long seen as safe investments—have lost value as interest rates increased, prompting concerns about the stability of banks, and in some cases leading to a rush of customer withdrawals.
Contra
PacWest CEO Paul Taylor stated in an earnings release last week that “deposits stabilized in the latter part of March and rebounded nicely in April” following significant withdrawals in March after SVB and Signature Bank failed.
Surprising Fact
Inflation has slowed to 5%—well below June’s 9.1% peak, but still far higher than the 2% rate the Fed has targeted.
Further Reading
Fed Raises Rates Another 25 Basis Points—Signals Pause May Come If Greater ‘Risks Emerge’ (Forbes)
Fed Indicates It May Pause Rate Hikes: Here’s How They’ve Changed The Economy (Forbes)
First Republic Bank Failure: A Timeline Of What Led To The Second-Largest Bank Collapse In U.S. History (Forbes)
Source: https://www.forbes.com/sites/nicholasreimann/2023/05/03/another-bank-on-the-brink-pacwest-stock-crashes-58-as-it-reportedly-weighs-sale/