PacWest says in talks with potential partners after stock plunges 60%

Lender says it’s been approached by investors and Bill Ackman warns US regional banking system at risk

A Pacific Western Bank branch in Huntington Beach, California. Reuters

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

“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.”

The turmoil at PacWest shows how investor angst still remains elevated after a string of failures and deposit outflows in the sector despite Federal Reserve Chair Jerome Powell’s assurance Wednesday that authorities were closer to containing the crisis.

It’s reignited the debate over whether more US regional lenders will fall after this year’s collapse of SVB Financial Group’s Silicon Valley Bank, Silvergate Capital, Signature Bank and most recently First Republic Bank.

Smaller banks are under pressure after a year of interest-rate hikes hammered the value of their bond holdings and drove unrealised losses to an estimated $1.84 trillion.

Trouble in commercial real estate is adding to the pain, while depositors take their money out to seek better returns elsewhere. These stresses have put the spotlight on these lenders, which typically have fewer resources to defend themselves.

PacWest’s confirmation of a Wednesday Bloomberg News report that it’s exploring options, including a sale, helped the stock pare losses in after-hours trading, but the shares were still down 37 per cent as of 6am in New York Thursday.

“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 maximise shareholder value.”

Market watchers were sceptical PacWest’s comments would ease the concerns. Nervousness engulfed other bank stocks as well, dragging down an ETF tracking regional lenders to its lowest level since 2020.

Western Alliance Bancorp also said Wednesday that it had seen no unusual deposit outflows and reaffirmed its guidance deposits would rise quarter-over-quarter. Yet Western Alliance, Comerica Inc. and Zions Bancorp all fell more than 17 per cent this week through Wednesday’s close.

The sell-off in PacWest also flew in the face of Powell’s assertion that the government’s seizure and sale of First Republic Bank to JP Morgan Chase was “an important step toward drawing a line under that period of severe stress” for regional lenders, Mr Powell said.

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, Mr 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,” Mr Ackman, chief executive of Pershing Square, said on Twitter. “As each domino falls, the next weakest bank begins to wobble.”

Raise the Cap

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

PacWest has been considering range of strategic options, including a sale, a break-up 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. The bank has about $44 billion in assets, compared with more than $200 billion for SVB.

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

After tumbling 60 per cent, PacWest pared losses in pre-market trading, but was still well below the $6.42 close on Wednesday.

PacWest’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.”