PacWest Bancorp
plunged 45% to a new low before trading was halted Thursday, despite comments from its officials that tried to assuage customers and Wall Street. And another regional bank,
First Horizon,
was having its own troubles after it called off its merger.
PacWest
(ticker: PACW) had a dismal trading day Wednesday, too. In the evening, it put out a statement that pointed out its deposits were rising.
“Core customer deposits have increased since March 31, 2023, with total deposits totaling $28 billion as of May 2, 2023, with insured deposits totaling 75% vs. 71% at quarter end and 73% as of April 24, 2023,” the Beverly Hills, Calif-based bank said in a statement.
PacWest stock has dropped 65% since the stock market closed last Friday. Shares dropped as much as 55% in after-hours trading Wednesday after Bloomberg News reported the bank was weighing strategic options, including a sale.
If PacWest stock closed at this level, it would be the largest percentage decrease on record and a low for shares, according to Dow Jones Market Data.
“There’s this existential fear out there right now, and I don’t think that’s warranted,” Wells Fargo analyst Jared Shaw told Barron’s on Thursday.
“We just came through earnings where all these banks showed us the strength of their balance sheets,” Shaw said. “We’ve heard from the CEOs of the biggest banks saying that the regional banks are a vital part of our economy. When you look at who does lending to middle market commercial customers around the country, it’s not the biggest banks, it’s the regional banks. So, it does feel like it’s overdone.”
First Horizon
First Horizon (FHN) fell 34%, hit both by the turmoil in regional banking and the mutually agreed termination of its merger agreement with
Toronto-Dominion Bank
(TD).
First Horizon and Toronto-Dominion said TD doesn’t have a timetable for regulatory approval and there is “uncertainty as to when and if these regulatory approvals can be obtained.” The banks had originally agreed to merge in February 2022.
The deal had called for TD Bank to pay $25 for each common share of First Horizon outstanding in an all-cash transaction. The total: an estimated $13.4 billion.
Raymond James analyst Michael Rose called the decision to call off the merger “certainly not unexpected” and had a theory about what led to the termination.
“…We suspect the recent turmoil in the regional bank space since the failures of SIVB and SBNY in March and the failure of FRC on Monday was a notable factor in terminating the transaction in addition to a challenging regulatory backdrop (where more regulations are expected in the wake of the recent crisis),” Rose wrote in a research note Thursday.
PacWest
PacWest said it was in discussions with partners and investors and that the talks were ongoing.
“Recently, the company has been approached by several potential partners and investors—discussions are ongoing. The company will continue to evaluate all options to maximize shareholder value,” the lender said.
In addition, the company paid down $1 billion of borrowings with its excess liquidity and said its cash and available liquidity remains solid and exceeded its uninsured deposits, representing 188% as of May 2.
PacWest is one of the banks that has come under the most pressure since the collapse of Silicon Valley Bank. Since then, banks with high levels of uninsured deposits or higher risk loan books have seen a run on deposits.
D.A. Davidson analyst Gary Tenner said PacWest stock was “not trading on fundamentals, given market fears.” He downgraded the shares to Neutral from Buy. RBC Capital Markets analysts were more bullish, maintaining their Outperform rating following PacWest’s update, which they described as being “helpful.”
Shares of other regional lenders were also lower Thursday. On top of concerns about PacWest, banks reacted to the news that the Federal Reserve hiked interest rates for a tenth time this cycle on Wednesday. Higher interest rates put pressure on banks by raising the costs of borrowing, potentially pressuring customers and limiting the amount of people applying to take out loans.
The
SPRD S&P Regional Banking exchange-traded fund
(KRE) fell 5.5% and was on pace for its lowest close since October 2020. The
S&P 500,
by comparison, was off by 0.7%.
Western Alliance
Western Alliance Bancorp
(WAL) was off 33%, erasing some earlier losses after the Financial Times reported that the bank is exploring strategic options, including a possible sale of all or some of its businesses.
A Western Alliance spokesperson told Barron’s that the report was “categorically false in all respects.”
“There is not a single element of the article that is true. Western Alliance is not exploring a sale, nor has it hired an advisor to explore strategic option,” the spokesperson said and added that the bank is considering legal options in response to the article.
On Wednesday, Western Alliance said that it hadn’t had unusual deposit outflows in recent days and that its capital base remains strong.
In a research note on Thursday, RBC Capital Markets analyst John Arfstrom wrote that he believes the data provided by the bank. He specifically pointed out that “capital ratios were up and deposits continued the positive trend that has been occurring since the depths of the crisis in mid to late March.”
“We like the fundamental trends at Western Alliance and believe they have a viable path to achieving their deposit growth goals and meeting their expectations they discussed on their earnings call,” Arfstrom said.
The analyst rates the stock as Outperform with a $59 price target.
Comerica
(CMA) slipped 11%, and
Valley National
(VLY) dropped 4.4%. Shares of both have seen selling earlier in the week.
Another Voice
Activist investor Bill Ackman called for a systemwide deposit guarantee regime to be implemented, adding “we are running out of time to fix this problem.”
“How many more unnecessary bank failures do we need to watch before the FDIC, the U.S. Treasury and our government wake up?,” he said on Twitter late Wednesday. “Confidence in a financial institution is built over decades and destroyed in days. As each domino falls, the next weakest bank begins to wobble,” Ackman said.
Ackman wasn’t alone in voicing this belief. UBS analyst Erika Najarian wrote in a research note Thursday that a change in deposit insurance “must be considered.”
“In order to stop the cascade before the market literally drives more bank failures, we wonder if it’s time for the Treasury and the Fed to step up and potentially create some sort of backstop via the Exchange Stabilization Fund (ESF)—at least until an act of Congress can permanently shift deposit limits,” Najarian said.
Write to Angela Palumbo at [email protected] and Brian Swint at [email protected]
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