Is the fourth American bank also falling?

04.05.2023. / 16:16

LOS ANGELES – Los Angeles-based US regional bank PacWest Bancorp is considering strategic options, including a potential sale or recapitalization.

The bank hopes to avoid the fate of other banks taken over by US regulators by proactively finding solutions to strengthen its finances. Those efforts came after the bank raised $1.4 billion from investment firm Atlas SP Partners in late March.

PacWest is one of the top 100 banks in the US and has branches in California, as well as in Durham, North Carolina and Denver, Colorado. According to last week’s announcement of its first-quarter results, its deposits stabilized after some customers withdrew their money.

The latest announcements from PacWest, however, prompted a sharp decline in the price of its shares and the shares of several other US regional lenders in trading after the close of US stock markets yesterday, the Index reports.

Regional bank Western Alliance Bancorp tried to encourage the markets yesterday evening, saying that it is not recording unusual movements related to deposits and that its liquidity is sufficient.

The Phoenix-based regional lender said it was “affirming its financial strength as well as its deposit growth guidance in response to recent developments in the banking industry.

A PacWest spokesman declined to comment.

Declining bank stock prices, including a 52 percent drop in PacWest and a 23 percent drop in Western Alliance, underscored how unconvinced investors remain that regional banks are doing well, despite regulators’ efforts to end the banking crisis that began with the collapse of Silicon Valley Bank and Signature Bank in March.

The turmoil in the banking sector comes after a relatively calm period and could reduce the availability of credit across America and hurt economic growth.

“Trust in a financial institution is built up over decades and destroyed in a few days. As with any domino effect, the next weakest bank starts to falter,” investor Bill Ackman wrote in a tweet. He urged regulators to introduce a broad deposit guarantee.

PacWest shares have lost nearly 90 percent of their value since the regional bank crisis began on March 8.

Other regional lenders, whose shares have been under pressure this week, also saw price declines, with shares of Zion Bancorp, First Horizon and Comerica all down more than seven percent, and the SPDR S&P Regional Banking ETF down five percent.

The crisis at America’s regional banks began in March, when a social media-fueled rush by customers to the Silicon Valley bank led to its sudden closure and prompted depositors across regional banks to seek safety at the largest institutions. Those problems forced regulators to introduce emergency measures. The market situation seemed to calm down at the end of last month.

Last weekend, however, First Republic Bank collapsed after a massive withdrawal of deposits and was sold to JPMorgan Chase & Co at an auction held by the Federal Deposit Insurance Agency (FDIC) over the weekend.

Although First Republic Bank, a California-based bank for the wealthy, was the third bank to fail since March, regulators had hoped its sale to JP Morgan would end the crisis.

Instead, the transaction renewed fears in the market. Some investors have warned that the crisis is not over, and hedge funds are betting that other banks could also take their turn.