US bank PacWest explores potential sale after shares plummet 50%

Pacific Western Bank said it had been approached by potential partners and investors and was reviewing strategic options as the teetering California lender became the latest midsized US bank to seek a financial lifeline amid the worst industry turmoil since 2008.

The bank said in a statement that it was looking at “all options to maximise shareholder value” after its shares plummeted 50 per cent in after-hours trading on Wednesday.

Earlier, two people briefed on the matter said the bank had instructed boutique investment bank Piper Sandler to help it explore strategic options including a sale. No formal sale process has been initiated yet and the bank was also considering raising new capital, the people said.

Pacific Western’s (PacWest) decision to seek a buyer or new capital, which was first reported by Bloomberg, comes days after the Federal Deposit Insurance Corporation seized First Republic and sold its deposits and assets to JPMorgan Chase.

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It comes six weeks after PacWest said it had shored up its access to cash by raising $1.4 billion (€1.2 billion) via a lending facility from Apollo-backed investment group Atlas SP Partners.

Shares of Western Alliance, which has also become a focus of investor angst following the seizure of three banks by US regulators since March, fell by more than a quarter in after-hours trading. Zions Bancorp and Comerica were down roughly 10 per cent.

As with other regional banks, PacWest has drawn negative attention because of its similarities to Silicon Valley Bank, which collapsed in March. These include ties to the tech community, large amounts of uninsured deposits and paper losses on its securities portfolio.

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Rising interest rates have weakened banks that relied on low-cost deposits, with the US Federal Reserve increasing rates by five percentage points in 14 months.

After a quarter-point increase on Wednesday, the US benchmark rate is now above 5 per cent for the first time since 2007. US stocks fell later in the day after Federal Reserve chair Jay Powell cautioned that the central bank might not begin cutting rates soon.

PacWest, which is based in Beverly Hills, reported late last month that it had lost more than $5bn in deposits during the first quarter but said it had stemmed the outflows and received more than $1 billion in inflows since March.

In an update on Wednesday, it said total deposits were $28 billion as of May 2nd, making it significantly smaller than either SVB or First Republic. “Our cash and available liquidity remains solid,” the bank said.

It said 75 per cent of deposits were covered by federal insurance, compared with 71 per cent at the end of the quarter.

The bank’s shares have fallen 77 per cent since the start of March, and the short interest in PacWest shares shot from less than 1 per cent at the end of January to 25 per cent this week.

The bank, which had been eking out small profits, reported a net loss of $1.21 billion in the first quarter. It also reported $860 million in unrealised losses in its securities portfolio.

More than three-quarters of its lending is to property, another area of concern in a period of rising interest rates, and 8 per cent is to venture capital. Its venture business had $6 billion in deposits at the end of March.

Piper Sandler did not immediately respond to a request for comment. – Copyright The Financial Times Limited 2023