Is PacWest the Next to Decline? Bank Shares Drop 22% After Decrease in Deposits

California-based lender PacWest Bancorp (PACW) experienced a decline of over 20% on Thursday after disclosing a substantial drop in its deposits.

This development follows a series of failures among US regional banks this year, which were preceded by similar warning signs.

Depositors Withdraw from PacWest

According to its quarterly report submitted to the Securities and Exchange Commission, PacWest indicated that its deposits decreased by 9.5% last week, primarily occurring on May 4 and 5. The bank attributed this decline to “increased market and customer anxieties” regarding its stability after First Republic Bank was shut down by regulators on May 1st.

“On the afternoon of May 3, 2023, PacWest was prominently featured in financial news with reports that it was ‘exploring all options and engaging in discussions with potential investors and partners,’” the firm stated. “These headlines heightened our customers’ concerns about the safety of their deposits.”

Among the numerous banks affected by the panic in the banking sector during First Republic’s collapse, PacWest was one of the most severely impacted. From April 28 to May 5, its stock price plummeted from $10.15 to $5.96, trading at $4.70 as of Thursday.

The bank clarified that it has already managed its deposit decline using available on-balance-sheet liquidity. As of May 10, the firm reported immediate liquidity of $15 billion, against uninsured deposits totaling $5.2 billion, resulting in a coverage ratio of 288%.

ADVERTISEMENT

A significant portion of that liquidity was derived from pledging $5.1 billion on Wednesday to the Federal Reserve’s discount window, which provided PacWest with an additional borrowing capacity of $3.9 billion.

PacWest also faced severe challenges during the initial wave of bank failures in March, which included Silvergate, Signature Bank, and Silicon Valley Bank (SVB). This situation caused PacWest’s stock to drop by 47% the day after SVB depositors received bailouts, leading to a loss of deposits exceeding the limits of federal deposit insurance.

In the first quarter, PacWest’s total deposits decreased by 16.9%—equating to $5.7 billion.

“These recent occurrences, along with the continuous media coverage, have amplified certain risks and uncertainties concerning our operations and future outlook,” the bank remarked.

The Current State of Banks

The Phoenix-based institution Western Alliance (WAL) also experienced considerable volatility following the bank failures in March, plummeting 76% on March 13. After the downfall of First Republic, its stock fell by 20% on May 2, from $36.18 to $28.96. It is currently trading at $28.96.

However, the bank seemed to perform better than PacWest regarding deposits, reporting an increase of $600 million in deposits between May 2 and May 9.

Following First Republic’s failure, BitMEX co-founder Arthur Hayes speculated that PacWest would be the next bank to collapse in the ongoing banking crisis. “Guess we know who is next to be deaded by the FDIC,” he tweeted in response to its declining stock prices.

Last week, US Senator John Kennedy described banks as “sophisticated Ponzi schemes” due to their dependence on the trust of their depositors.

SPECIAL OFFER (Sponsored) Binance Free $100 (Exclusive): Use this link to register and receive $100 free and 10% off fees on Binance Futures first month (terms).
PrimeXBT Special Offer: Use this link to register & enter CRYPTOPOTATO50 code to receive up to $7,000 on your deposits.