Regional bank stocks fell again Thursday after troubled California lender PacWest (PACW) disclosed it lost 9.5% of deposits last week on a wave of new pessimism surrounding the industry.
The Beverly Hills, Calif.-based institution first came under investor scrutiny following the March 10 failure of Silicon Valley Bank. PacWest stock took another dive last week following reports that it had been weighing a sale or capital raise.
Those headlines, PacWest said in an SEC filing Thursday, heightened customer “fears of the safety of their deposits.” The “majority” of the 9.5% drop last week, it said, happened on May 4 and May 5.
PacWest stock ended Thursday down 23%.
Shares of some other regional banks that experienced pressure from depositors and investors in recent months also fell. The stock of Western Alliance (WAL) seesawed after saying that its deposits rose by roughly $600 million between May 2 and May 9 and ended the day down nearly 1%.
Phoenix-based Western Alliance has also come under pressure in recent weeks. Last week, it responded to a Financial Times report about the exploration of a sale of some parts of its business as “categorically false.”
Thursday’s volatility in the sector is the latest example of a disconnect in the financial world about the health and stability of regional banks.
While top figures on Wall Street and Washington display optimism that the worst of this crisis is over, investors continue to punish regional lenders that share any characteristics of the three mid-sized banks — Silicon Valley Bank, Signature Bank, and First Republic — already seized by regulators.
Another pressure point is that some investors have also made tiny sums betting against these regional banks, with calls mounting to ban short selling on banks or investigate the behavior of these investors for any wrongdoing.
Securities and Exchange Commission Chair Gary Gensler said last week that “the SEC is particularly focused on identifying and prosecuting any form of misconduct.”
‘Additional assets as collateral’
PacWest on Thursday described the steps it has taken to deal with the new outflow of deposits. The company said it pledged $5.1 billion on Wednesday to the Federal Reserve’s discount window, which gave the firm an additional borrowing capacity of $3.9 billion.
That gave PacWest a total of $15 billion in immediately available liquidity, which exceeded its uninsured deposits of $5.2 billion. Uninsured deposits are considered a flight risk during uncertain periods.
“We pledged additional assets as collateral for borrowings to increase our liquidity position for potential deposit outflows,” it said, adding that it also plans to complete some asset sales in the second quarter to improve its liquidity and capital positions.
The bank has also reduced its dividend to strengthen its financial position.
PacWest’s biggest deposit outflow this year happened during the aftermath of Silicon Valley Bank’s seizure when customers pulled $5.7 billion, or 16.9% of the bank’s, during the first quarter. Most of those deposits were uninsured.