PacWest weighs its options, sending bank shares in a tailspin

PacWest Bancorp is exploring strategic options, a source familiar with the matter said, sending the shares of the bank and several other US regional lenders tumbling in after-market trading.

The fall in shares, including a nearly 60 per cent plunge at PacWest, underscores how investors remain unconvinced about the health of regional banks despite regulators' efforts to call an end to the banking crisis that started with the collapse of Silicon Valley Bank and Signature Bank in March.

The sector jitters come after a period of relative calm, and could tighten credit availability across America and hurt growth.

"Confidence in a financial institution is built over decades and destroyed in days. As each domino falls, the next weakest bank begins to wobble," billionaire investor Bill Ackman wrote in a tweet.

He called on regulators to put in a broad deposit guarantee.

"Until investors are rewarded for betting on a wobbling bank, there will be no bid, and the best sale is the last price," he wrote.

A PacWest spokesperson did not immediately respond to a request for comment.

PacWest stock has lost almost 90 per cent of its value since the regional banking crisis started on Mar 8. Other regional lenders, whose shares have been under pressure this week, also fell, giving up gains from earlier in the day.

Western Alliance Bank fell 30 per cent. Zion Bancorporation, Comerica and First Horizon each slumped more than 7 per cent and the SPDR S&P Regional Banking ETF dropped 5 per cent.

Western Alliance, Zion, Comerica and First Horizon were not immediately available for comment after business hours on Wednesday (May 3).

BANKING CRISIS

The crisis in US regional banks began in March, when a rapid social media-driven run on Silicon Valley Bank led to its abrupt closure and sent depositors across regional banks fleeing to the safety of the largest institutions. The crisis forced regulators to step in with emergency measures.

The markets appeared to calm by late last month.

Last weekend, however, First Republic Bank, which had been swept up in the bank run, failed and was sold to JPMorgan Chase & Co in a weekend auction conducted by the Federal Deposit Insurance Corp (FDIC).

Although First Republic, a California-based lender to the wealthy, became the third bank failure since March, regulators hoped its sale to JPMorgan would draw a line under the crisis.

Instead, the deal renewed fears in the market. Some investors warned that the crisis was not over, and hedge funds bet other dominos may still fall.

Some executives have said that a bank trying to raise capital during a crisis could be seen as a sign of weakness and spook investors instead of boosting confidence in the institution.

Major banks and private equity firms have balked at offering capital infusions to regional lenders without a government backstop because of concerns about booking losses on their low-yielding assets such as loans and investment portfolios.

The cost of insuring against further losses in regional US bank stocks stood on Wednesday near a one-month high in options markets.

Earlier on Wednesday, US Federal Reserve Chair Jerome Powell reiterated that the country's banking system was resilient while delivering another 25 basis point rate hike.

STRATEGIC OPTIONS

Based in Los Angeles, PacWest has branches in California as well as Durham, North Carolina and Denver, Colorado. In its first-quarter earnings last week, its deposits had stabilized after some customers pulled their money.

On Wednesday a source said the lender was looking at options that include a potential sale or capital raise.

The bank, one of the top 100 US banks, is hoping to avoid the fate of others that were taken over by US regulators by proactively finding a solution to bolster its finances, the source said, asking not to be identified because the matter is confidential.

The effort comes after the bank raised US$1.4 billion from investment firm Atlas SP Partners in late March.

"When you lose confidence in the banks, that equals a whole lot of trouble," said Dennis Dick, a trader at Triple D Trading in Ontario, Canada. "I haven't felt this scared since the financial crisis."