PacWest in strategic talks with investors after stock crash

PacWest in strategic talks with investors after stock crash

PacWest Bancorp is in talks with potential partners and investors about strategic options for its business after its shares and those of other regional US banks fell amid fears of a deepening banking crisis.

PacWest said in a statement that there has been no outflow of deposits since the sale of First Republic Bank to JPMorgan Chase & Co. was announced on Monday.

The bank says the planned sale of its $2.7bn loan financing portfolio is ongoing and will increase its Tier 1 core capital ratio from 9.21% to at least 10% upon completion.

“In line with normal practice, the bank and its board of directors are constantly reviewing strategic options,” PacWest said.

“Recently, several potential partners and investors approached us – negotiations are ongoing. All options are being evaluated to maximize shareholder value,” the statement said.

Reuters, citing people familiar with the matter, said PacWest was exploring strategic options, including a possible sale or capital raise, after a liquidity injection announced in March failed to help bolster falling stocks.

Shares in PacWest plunged 52% on Wednesday, while shares in Western Alliance fell 23%. This proves that investors remain unsure about the viability of US regional banks, despite efforts by regulators to end the banking crisis that began in March with the collapse of Silicon Valley Bank and Signature Bank.

Western Alliance Bancorp also tried to calm the markets, saying it has not experienced any unusual deposit outflows and has adequate liquidity.

The Phoenix-based regional bank said it “confirms its financial strength as well as deposit growth forecast in response to recent industry developments.”

Nervousness in the sector comes after a period of relative calm and could reduce the availability of credit across America and hurt economic growth.

“Trust in a financial institution is built over decades and eroded in days. As each domino falls, the next weakest bank starts to wobble,” tweeted billionaire investor Bill Ekman.

He urged regulators to provide broad guarantees for depositors.

“Until investors are rewarded for betting on a wobbly pot, there will be no offers, and the best sale is the last price,” Ekman wrote.

PacWest shares have lost almost 90% of their value since the regional banking crisis began on March 8. Other regional banks, whose shares were under pressure this week, also fell in price, losing the profit received the day before.

Zion Bancorp, First Horizon, and Comerica are down over 7% each, while the SPDR S&P Regional Banking ETF is down 5%.

Dallas-based Comerica said that while its deposits declined in the first quarter, they remained above pre-pandemic levels and are now less concentrated on rate-sensitive customers.

“We do not believe that these recent developments affecting specific banks, as well as the concerns that share price fluctuations are currently causing, accurately reflect the general state of the banking industry,” Comerica said in a statement.

The crisis in US regional banks began in March when a rapid social media attack on Silicon Valley Bank led to its sudden closure and forced depositors from regional banks to transfer their funds to the largest banks.

The problems have forced regulators to take emergency action. By the end of last month, the markets seemed to calm down.

Although First Republic was the bank’s third bankruptcy since March, regulators hoped its sale to JPMorgan in an auction by the Federal Deposit Insurance Corporation (FDIC) would draw a line under the current crisis.

Instead, the deal raised concerns in the market. Some investors are warning that the crisis is not over yet, and hedge funds are betting that other dominoes may yet fall.

Major banks and private equity firms are reluctant to inject capital into regional banks without government support due to concerns about losses on their low-yielding assets such as loans and investment portfolios.

The cost of insurance against further losses in shares of US regional banks on Wednesday was near a one-month high in the options markets.

Earlier, US Federal Reserve Chairman Jerome Powell reiterated that the country’s banking system is strong, while securing another 25 basis point rate hike. Powell also said that bank deposits have stabilized.

PacWest has branches in California as well as Durham, North Carolina and Denver, Colorado. Last week’s first-quarter earnings data showed that deposits stabilized after some customers withdrew their money.

PacWest, one of the top 100 US banks, hopes to avoid the fate of others that were liquidated by US regulators while actively looking for a solution to support its finances. A source told Reuters, asking to remain anonymous as the matter is confidential.

The effort comes after the bank raised $1.4 billion in late March from investment firm Atlas SP Partners.

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