PacWest Stock Plunges 23% on Fresh Deposit Outflow Concerns. PacWest Bancorp shares experienced a sharp 23% decline on Thursday, triggering a ripple effect on midsize banks, as the company revealed another wave of deposit flight. In a securities filing, PacWest reported a loss of 9.5% in total deposits last week. The volatile trading prompted multiple halts in PacWest stock.
The downturn commenced with the collapse of First Republic, raising concerns among bank investors about the potential spread of turmoil in regional banks. However, PacWest clarified that the majority of deposit outflows occurred on May 4 and 5, following news reports speculating about a potential sale of PacWest.
The KBW Nasdaq Regional Banking Index tumbled 2.4%, dragging down other regional banks such as Zions, Comerica, and Bank of Hawaii, which saw declines ranging from 4% to 10%. On the other hand, major U.S. banks like JPMorgan Chase and Bank of America experienced little change in their stock prices.
Since March, when regional banks began showing signs of stress due to high interest rates, bank shareholders have been on edge. Several banks have collapsed during this period, leaving investors uncertain about the future of the remaining banks and the potential spillover of stress into the broader economy. Bond investors are demanding higher yields to hold the bonds of regional banks, further pressuring these lenders.
PacWest shares have witnessed an 80% decline since March 8, when Silicon Valley Bank’s loss announcement initially rattled investors. However, since May 4, the shares have rebounded by nearly 50% from their lowest closing point.
Bank analysts express cautious optimism, believing that the worst may be over despite the drop in PacWest’s stock. Research from the Federal Reserve Bank of New York indicates that small banks have weathered interest-rate increases and recent market turbulence relatively well.
Christopher McGratty, Head of U.S. bank research at Keefe, Bruyette & Woods, stated, “The risk we are witnessing is specific to certain portfolios of certain companies.”
Western Alliance, another bank significantly affected since March, experienced a modest 1% decline.
As of Tuesday, PacWest reported total deposits of $49.4 billion, representing an increase of $600 million from the previous week. Jefferies managing director Casey Haire reassured, “There is no threat to the system, and these updates demonstrate that.”
Meanwhile, First Citizens Bancshares observed a 5% increase in shares. The bank’s stock rose over 7% on Wednesday after reporting earnings that surpassed analyst expectations. First Citizens had acquired a majority of the failed Silicon Valley Bank.
The divergent performance of stocks “hopefully indicates the presence of differences and the significance thereof,” added Mr. McGratty.
In another development, JPMorgan Chief Executive Jamie Dimon expressed his belief that the Securities and Exchange Commission (SEC) should investigate short selling of bank stocks. Mr. Dimon stated, “If someone’s doing anything wrong, people are in collusion, or people going short and then making a tweet about a bank, they should go after them, and vigorously, and they should be punished to the full extent the law allows it.” However, he clarified that he had no evidence of wrongdoing but acknowledged the possibility.
The SEC declined to comment on Mr. Dimon’s remarks. Short sellers, who bet against the rise of a stock, have targeted PacWest and other regional banks. Critics argue that this recent shorting activity has spooked bank customers, prompting them to withdraw their deposits.