PacWest Bancorp (PACW) shares collapsed to a record low Thursday after the Los Angeles-based lender said it's considering a host of strategic alternatives, including an outright sale, just weeks after touting its improved deposit base to investors.
London's Financial Times also reported that Western Alliance (WAL) is also exploring strategic alternatives, a claim the bank itself vehemently denied Thursday, adding that it's considering legal options as a result of the piece.
"The Financial Times’ report today that Western Alliance is considering a potential sale of all or part of its business is categorically false in all respects," Western Alliance said. "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 options."
"It is shameful and irresponsible that the Financial Times has allowed itself to be used as an instrument of short sellers and as a conduit for spreading false narratives about a financially sound and profitable bank," the statement added. "We are considering all of our legal options in response to today’s article."
Bloomberg first reported that PacWest has considered by raising fresh capital to bolster its balance sheet, or a breakup of its Pacific Western Bank franchise from its other consumer and commercial lending businesses. The bank confirmed that strategy late Wednesday, saying its in talks with potential partners.
PacWest scrapped plans to raise capital in March, as bank stocks were pummeled in the wake of the Silicon Valley Bank collapse, and noted Wednesday that 75% of its total $28 billion deposit base fell withing the FDIC's protection threshold.
"The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news," the PacWest said in a statement late Wednesday. "Our cash and available liquidity remains solid and exceeded our uninsured deposits."
"At the beginning of the year, the Company announced a new strategic plan designed to maximize shareholder value by focusing on various elements and improving our operational efficiency," PacWest said. "We have been executing this strategy and have accelerated many of these goals in response to recent market volatility in the banking industry."
PacWest shares were marked 41.5% lower in afternoon trading to change hands at $3.73 each. The stock hit an all-time low of $2.48 each earlier in the session that would value the bank at just $400 million. Western Alliance, meanwhile, was last seen down 32.3% at $20.00 each.
The KBW Regional Banking index fell 4.05% lower to a fresh two-year low of 71.79, pegging its 2023 decline at around 30%.
The Federal Reserve acknowledged simmering risks in the banking sector, following the failure of Silicon Valley Bank and the closure of Signature Bank in early March, as well as the sale of First Republic (FRC) to JPMorgan (JPM) earlier this week, but insisted the system is "sound and resilient" as it delivered its 10th consecutive rate hike yesterday in Washington.
First Republic's sale marked the second U.S. bank failure in as many months following the collapse of SVB Financial and the close of Signature Bank in early March. The move saw JPMorgan outbid PNC Financial (PNC) and Citizens Financial (CFG) for the lender and wealth manager's $173 billion loan book and its $92 billion in deposits.
“There were three large banks, really from the very beginning, that were at the heart of the stress that we saw in early March — the severe period of stress. Those have now all been resolved, and all the depositors have been protected,” Powell said, adding the First Republic sale "kind of draws a line" under the period of regional bank stresses.
The deal did not, however, include either First Republic's debt nor its preferred or common stock, and the loan book valuation may be forcing mark-to-market adjustments at other regional banks.
The Federal Deposit Insurance Corp. also took a $13 billion hit on the sale, which it arranged alongside the California Department of Financial Protection and Innovation late Sunday.
“Global investors do not seem to think the turmoil among small regional US banks represents a systemic risk, although some of the UK-listed banking blue-chips have shown weakness in recent weeks," said Rob Clarry, a London-based investment strategist at wealth manager Evelyn Partners.
“But the risks in the US of overtightening monetary policy are becoming clear," he added. "The failure of Silicon Valley Bank and Signature Bank in March exposed fragilities in the US banking system, and the collapse of First Republic this week further exacerbated these concerns."
