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PacWest is showing signs of instability; shall we be concerned?

PacWest Stock Price since May 2022

Source: Dow Jones


News is not good for Pacific Western Bank. The California-based regional bank’s stock price has declined more than 25% this morning in pre-market trading. Over the past year, its share price declined by over 84%. The bank said in a securities filing on Thursday that its deposits declined 9.5% during the week of May 5. PacWest said that the majority of those outflows came after media reports that said the bank exploring strategic options. The bank also said that it was able to fund those withdrawals with available liquidity. PacWest said it has now $15 billion of available liquidity compared to $5.2 billion in uninsured deposits. Shares of other regional banks fell early Thursday too, with Western Alliance, down 10%, and Zion off 2.7%.

“The news headlines increased our customers’ fears of the safety of their deposits,” PacWest said in its filing with the Securities and Exchange Commission. The FDIC insures accounts up to $250,000 although in its March seizures of failed Silicon Valley Bank and Signature Bank, the agency covered all deposits, but not the shareholders.

The update marks a change from May 4, when Pacific Western Bank said that it was not experiencing “out-of-the-ordinary deposit flows” and that total deposits had increased since the end of March. During the first quarter, PacWest’s total deposits declined 16.9%, and the bank said it would use strategic assets sales to reshape its balance sheet. On May 5, the bank said that its “business remains fundamentally sound” and that it would make the “prudent step” to cut its quarterly dividend to 1 cent a share from 25 cents a share.

The regional banking sector has been under pressure since early March, when concerns about the impact of higher interests to a run on deposits at Silicon Valley Bank, which was seized by regulators. The banking system overall remains fragile and the dizzy situation in which PacWest is currently in does not reassure the public. The problem with the banking industry is that it has a domino effect. The latest bank to go under was First Republic Bank, and PacWest, whose share price collapsed dramatically, is showing signs of instability and perhaps a debut of panic from depositors.

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