California lender PacWest Bancorp (PACW) fell over 20% on Thursday after the company revealed it had lost a significant portion of its deposits.
This follows a string of US regional bank failures this year that were preceded by similar red flags.
Depositors Flee From PacWest
Per its quarterly report filed with the Securities and Exchange Commission, PacWest said its deposits declined by 9.5% last week – mostly occurring on May 4 and 5. This, according to the bank, was in response to “heightened market and customer fears” surrounding the bank after First Republic Bank was closed by regulators on May 1st.
“On the afternoon of May 3, 2023, PacWest was featured prominently in the financial news headlines with reports that PacWest was “exploring all of its options and having talks with potential investors and partners”,” wrote the firm. “The news headlines increased our customers’ fears of the safety of their deposits.”
Among the many banks caught up in banking sector fear during First Republic’s fall, PacWest was one the hardest hit. During the week from April 28 to May 5, its stock price fell from $10.15 to $5.96, and trades for $4.70 as of Thursday.
The bank clarified that it has already funded its decline in deposits with available on-balance-sheet liquidity. As of May 10, the firm held immediately available liquidity of $15 billion, against uninsured deposits of $5.2 billion, representing a coverage ratio of 288%.
Much of that liquidity stemmed from having pledged $5.1 billion on Wednesday to the Federal Reserve’s discount window, giving PacWest another $3.9 billion in additional borrowing capacity.
PacWest was also hit hard during the initial string of bank failures in March that claims Silvergate, Signature Bank, and Silicon Valley Bank (SVB). The event caused PacWest to plummet 47% the day after SVB depositors were bailed out, and to lose deposits in excess of what federal deposit insurance could cover.
In the first quarter, PacWest’s deposits fell by $16.9% total – or $5.7 billion.
“These recent events, and the ongoing news coverage of these events, has increased certain risks and uncertainties related to our business and future prospects,” stated the bank.
The Current State of Banks
The Phoenix-based bank Western Alliance (WAL) also underwent significant volatility after March’s bank failures, dropping a whopping 76% on March 13. After First Republic went down, its stock slid 20% on May 2 from $36.18 to $28.96. It currently trades for $28.96.
The bank appeared to fare better than PacWest on the deposit front, however, reporting a $600 million increase in deposits between May 2 and May 9.
After First Republic’s failure, BitMEX co-founder Arthur Hayes predicted that PacWest would be the next bank to fall in the ongoing banking crisis. “Guess we know who is next to be deaded by the FDIC,” he tweeted in response to its sliding stock prices.
Last week, US Senator John Kennedy referred to banks as “sophisticated Ponzi schemes” due to their reliance on their depositors’ trust in them.