The recovery of American First Republic Bank has yet to restore investor confidence. Three days after banking giant JP Morgan saved a troubled San Francisco financial institution from collapse, another US bank is reeling. Again, it’s a regional player from California: Backwest in Los Angeles.
Turmoil at PacWest, which has nearly 2,500 employees and 67 locations, arose in aftermarket trading on Wednesday. The reason is that PacWest is mapping out its “strategic options,” according to a report by financial news firm Bloomberg. One of those options is a sale to another owner, but raising new capital has been discussed, according to Bloomberg.
That prompted shareholders to immediately dump their shares in PacWest, which confirmed the news in a press release Wednesday night. In aftermarket trading, the stock fell nearly 58 percent in less than 30 minutes. By the time the market opened on Thursday, that loss had narrowed slightly: minus 42 percent.
In the statement, Bequest says it is looking at “all avenues to maximize shareholder value.” As stated therein Financial Times At the helm of the bank is American takeover specialist Piper Chandler Taken in hand To help, the business newspaper reports based on sources. Incidentally, a formal sales process has not yet been set up.
A lot of panic
PacWest is not the largest party in the US banking industry. The bank is much smaller than mid-sized First Republic, Silicon Valley Bank or Signature Bank — a trio that has run into trouble in recent weeks. With a balance sheet of 40 billion dollars (over 36 billion euros), PacWest, for example, is five times smaller than Silicon Valley Bank. Of the more than 4,000 U.S. banks, 58 are large.
:format(webp)/s3/static.nrc.nl/images/gn4/stripped/data99770165-6a55f9.jpg)
read more: Is the US banking crisis re-emerging due to the problems of the First Republic?
Still, the panic surrounding PacWest says a lot about the prevailing sentiment among investors at the moment: They’re not sure a crisis has been averted. Concerns about PacWest immediately spread Wednesday night to other regional banks, which have been vulnerable in recent weeks. Western Alliance (70 billion in stock) lost a quarter in aftermarket trading, while slightly larger Zions and Comerica both lost about 10 percent. reported on Thursday Financial Times So is the Western Alliance Investigates sales, after which the price fell further. The bank itself is yet to confirm the reports.
After unrelated news about another regional bank, the same thing happened on Thursday: Before the stock market opened, First Horizon Bank announced that its billion-dollar acquisition of Canadian TD Bank would not go ahead because of objections from regulators. Shares of First Horizon fell more than 36 percent on Thursday.
Shops and offices
It’s been quite a while around the PacWest. The stock is now down 90 percent from last year. The California firm is facing similar vulnerabilities as the Silicon Valley bank, which first collapsed in March and was later bailed out by the FDIC regulator. Both SVB and PacWest did a lot of business in the technology sector, had a lot of uninsured savings and suffered significant losses on their loan portfolios.
At PacWest, SVB had that pain in many loans to commercial real estate developers. According to FT More than three-quarters of all the bank’s loans are in retail properties and offices. Now, with the demand for such spaces dwindling after the corona pandemic, the question is whether developers can continue to meet those inflows, according to market experts.
Bawest is not the largest party within the sector. However, the panic surrounding US banking says a lot about the prevailing sentiment among investors at the moment
In its quarterly results late last week, PacWest reported that savers have also been leaving in large numbers in recent months. Such an exodus would exacerbate the bank’s problems. Initially, investment setbacks are mainly ‘paper’ losses and there is time to wait for results to improve. But once customers leave and a bank must sell investments to pay off savings, such a loss is certain.
:format(webp)/s3/static.nrc.nl/bvhw/files/2023/05/data99937233-4678b7.jpg)
read more: Another US bank collapses – again the savior is called JP Morgan
Coincidentally, savings declined at a slower rate at PacWest than at First Republic, with customers withdrawing half of their deposits within weeks. At the smaller Los Angeles bank, it fell to $5.7 billion in the first quarter, nearly 20 percent of the total. According to the PacWest CEO, this happened mainly in January and February. The amount of money deposited increased again in March.
“Award-winning beer geek. Extreme coffeeaholic. Introvert. Avid travel specialist. Hipster-friendly communicator.”