PacWest Bancorp has become the latest focal point of investor concern about the health of US regional banks, shedding more than half its value just hours after Federal Reserve Chair Jerome Powell said authorities were closer to containing the turmoil that’s claimed four lenders this year.
The selloff, sparked by a Bloomberg News report that PacWest is considering strategic options including a sale, dragged down shares of the California lender by as much as 60% in after-hours US trading on Wednesday and sent an ETF tracking regional banks to its lowest level since 2020.
PacWest later confirmed it has been approached by several potential investors and is evaluating all options.
The moves show market angst over the sector remains high, despite Powell’s assurances that the government seized and sold First Republic Bank to JPMorgan Chase & Co. The First Republic deal effectively wiped out shareholders and bondholders while safeguarding depositors.
Big US banks have so far been insulated from the turmoil and the Fed has said the financial system is sound. Still, PacWest’s plunge may heighten pressure on policy makers to shore up smaller lenders that have struggled to cope with the most aggressive monetary tightening campaign since the 1980s.
Financial heavyweights including hedge fund billionaire Bill Ackman and former Federal Reserve Bank of Dallas President Robert Kaplan are among those warning of more banking stress to come.
PacWest isn’t the only US regional bank under fire. Western Alliance Bancorp fell as much as 38% in postmarket trading, while Comerica Inc. and Zions Bancorp fell more than 10% each.
PacWest said in a statement dated Wednesday it has not experienced “out-of-the-ordinary” deposit flows following the sale of First Republic and other news. Core customer deposits have increased since March 31, with deposits totaling $28 billion as of May 2. Its cash and available liquidity exceeded uninsured deposits, according to the statement.
Western Alliance also said in a statement late Wednesday that it hasn’t experienced unusual deposit flows following the sale of First Republic and other “recent industry news.”
First Republic Bank, acquired by JPMorgan on Monday in a government-led deal, became the fourth US lender to collapse this year, following Silvergate Capital Corp., SVB Financial Group’s Silicon Valley Bank and Signature Bank in March.