According to people familiar with the situation, PacWest Bancorp (NASDAQ: PACW), a regional bank teetering after the failure of three competing California-based lenders, has been considering a variety of strategic options, including a sale.
The Beverly Hills-based bank has been reportedly working with a financial adviser and has been discussing a breakup or a capital raising. According to the sources, while the corporation is open to selling, it has not begun a formal auction process.
PacWest shares collapsed as much as 60% in after-market trading following the news. Other regional banks also saw their equity decline in extended trading.
The PacWest report came just mere hours after Federal Reserve Chief Jerome Powell attempted to reassure the industry that the banking system is “sound and resilient.”
“Our banking system is sound and resilient, with strong capital and liquidity. We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound,” Powell said in a prepared statement at the press conference following the Federal Open Market Committee (FOMC) meeting.
The Fed raised the target range to 5 to 5 1/4 percent, representing a 25 bps hike, following a unanimous decision by the committee.
“The [FOMC] seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to raise the target range for the federal funds rate to 5 to 5-1/4 percent,” the committee said within its statement.
The comments come on the heels of the domino-like bank failures of Silvergate Bank, Silicon Valley Bank, Signature Bank, and First Republic Bank. A run on deposits at many regional banks in the United States has caused havoc. The equities have been shaky since rising interest rates lowered the value of bonds purchased by regional lenders while interest rates were low, forcing some of them to sell those assets at a loss.
The collapse has brought the regional banking industry teetering, with the latest reported strategic maneuvering from PacWest signaling that the banking system is far from being sound.
According to the people, an outright sale has been hampered since there aren’t many potential purchasers interested in the entire bank, which includes a community lender named Pacific Western Bank as well as some commercial and consumer lending operations. According to the sources, a possible buyer would also have to take a significant loss on certain of its loans.
When the bank reported results last month, it stated that deposits had stabilized following a flood of withdrawals in March that raised concerns about its viability and compelled it to shore up liquidity. The bank has been considering selling its lending finance business in order to free up money and reduce its balance sheet.
PacWest, led by Chief Executive Officer Paul W. Taylor, sought several times to reassure investors about its stability, first stating on March 10 that it had taken efforts to strengthen itself, and then again on March 22 that deposits had stabilized.
However, it also put off efforts to raise capital at the time, stating that it would not be prudent under current conditions. Instead, it borrowed $1.4 billion from Atlas SP Partners’ financing facility and strengthened its coffers with funds from different federal initiatives.
PacWest Bancorp closed the regular session at $6.42 yesterday on the Nasdaq, and is currently trading at $3.77 pre-market.
Information for this briefing was found via Bloomberg and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
