Shares of regional banks fell again on Thursday after troubled California lender PacWest (PACW) revealed it lost 9.5% of its deposits last week on a wave of renewed pessimism surrounding the industry.
The Beverly Hills, Calif.-based institution first came under intense scrutiny from investors after Silicon Valley Bank failed on March 10. PacWest stock plunged further last week following reports that it was considering a sale or a capital raise.
Those headlines, PacWest said in a filing with the SEC on Thursday, heightened “customer fears about the security of their deposits.” The “majority” of last week’s 9.5% decline, he said, occurred on May 4-5.
PacWest stock ended Thursday down 23%.
Shares of some other regional banks that have come under pressure from depositors and investors in recent months also fell. Western Alliance (WAL) stock tumbled after it said its deposits rose by around $600 million between May 2 and May 9 and ended the day down nearly 1%.
Phoenix-based Western Alliance has also come under pressure in recent weeks. Last week he responded to a Financial Times report exploring a sale of parts of his business as “categorically untrue”.
Thursday’s volatility in the sector is the latest example of a disconnect in the financial world on the health and stability of regional banks.
As top Wall Street and Washington officials show optimism that the worst of this crisis is over, investors continue to punish regional lenders that share characteristics of the three midsize banks – Silicon Valley Bank, Signature Bank and First Republic – already seized by regulators.
Another pressure point is that some investors have also made small amounts betting against these regional banks, with calls growing to ban short selling on banks or investigate these investors’ behavior for any wrongdoing.
Securities and Exchange Commission Chairman Gary Gensler said last week that “the SEC is particularly focused on identifying and prosecuting any form of misconduct.”
“Additional collateral assets”
PacWest on Thursday outlined the steps it has taken to deal with the new outflow of deposits. The company said it pledged $5.1 billion at the Federal Reserve’s discount window on Wednesday, giving it an additional $3.9 billion in borrowing capacity.
This gave PacWest a total of $15 billion in immediately available liquidity, which exceeded its uninsured deposits by $5.2 billion. Uninsured deposits are considered a flight risk during uncertain times.
“We have pledged additional assets as collateral for borrowings to increase our liquidity position for potential deposit outflows,” he said, adding that he also expects to complete some asset sales in the second quarter. to improve its liquidity and capital positions.
The bank also cut its dividend to strengthen its financial position.
PacWest’s biggest deposit outflow this year came in the aftermath of the Silicon Valley Bank foreclosure, when customers withdrew $5.7 billion, or 16.9% from the bank, in the first quarter. Most of these deposits were uninsured.
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