PacWest's Shares Plummet as It Considers Possible Sale

Report slashed regional banks shares more than 50% in extended hours trading Wednesday

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Shares of embattled lender PacWest Bancorp (PACW) plummeted in extended trading Wednesday after a report indicated it has begun considering a possible sale.

PacWest lost more than half of its market value after Bloomberg reported the Beverly Hills, Calif-based regional bank had engaged financial advisers to weigh its strategic options. In addition to a sale, the bank also has considered raising capital.

PacWest decided against the latter option in March after securing $1.4 billion in financing from Atlas SP partners, an affiliate of private debt and equity giant Apollo. The bank also accessed emergency federal loan programs.

The federal government, led by the Federal Reserve, initiated those loan programs in March after the failures of Silicon Valley Bank and New York-based Signature Bank. JPMorgan Chase rescued another distressed regional lender, First Republic Bank, this week, buying the lender after the FDIC assumed control.

Balance Sheet Blues

Rising interest rates have stressed the balance sheets of many regional and mid-sized banks, which buy bonds and make loans to offset deposits on their financial balance sheets. The value of those bonds has declined since the Fed started raising interest rates, creating substantial unrealized losses for some lenders.

The three aforementioned banks couldn't overcome their balance sheet woes. Credit agencies have downgraded many others facing similar, but not quite as severe, challenges.

PacWest, however, has estimated unrealized losses on its loans and bonds equaling 95% of its book value, according to a Wedbush Securities research report issued last month.

That was before the bank reported in April that its deposits declined by $5 billion to $28.2 billion in the first quarter. Its deposits increased by $700 million between March 31 and April 24.

PacWest's shares had fallen 72% this year before Wednesday's slide in extended trading. Ironically, the provider of its March capital influx, Atlas, encompasses a securitized products group purchased just a month earlier by Apollo from Credit Suisse—the 166-year-old banking giant recently taken over by Swiss rival UBS because of its financial problems.

Shares of various other regional and mid-sized banks also declined in extended hours, including Western Alliance (down 23%), Zions Bancorp. (down 9%), and KeyCorp (down 7%). The SPDR S&P Regional Banking ETF fell 4%.

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  1. Bloomberg. "PacWest Is Weighing Strategic Options, Including Possible Sale."

  2. The Wall Street Journal. "Moody's Downgrades 11 Regional Banks, Including Zions, U.S. Bank, Western Alliance."

  3. CNBC. "PacWest falls more than 50% after hours on report bank is considering options."

  4. Apollo. "Apollo Announces Launch of ATLAS SP Partners in Connection with a Close of the Credit Suisse Securitized Products Group Transaction."

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