Regional Banks Sink as PacWest Weighs Strategic Options
PacWest Bancorp has become the latest focal point of investor concern about the health of US regional banks, shedding nearly half its value in premarket trading, a day after Federal Reserve Chair Jerome Powell said authorities were closer to containing the turmoil that’s claimed four lenders this year.
The selloff was sparked by a Bloomberg News report that PacWest is considering strategic options including a sale. The bank’s confirmation that it has been approached by several potential investors did little to assuage concerns, leaving the shares down as much as 48% in early trading on Tuesday. The rout sparked a selloff across other peers, with an ETF tracking regional banks hovering near the lowest level since 2020.
The moves show market angst over the sector remains high, despite Powell’s assurances that the government seizure and sale of First Republic Bank to JPMorgan Chase & Co. was “an important step toward drawing a line under that period of severe stress” for regional lenders. The First Republic deal effectively wiped out shareholders and bondholders while safeguarding depositors.
Big US banks have so far been insulated from the turmoil and the Fed has said the financial system is sound. Still, PacWest’s plunge may heighten pressure on policymakers to shore up smaller lenders that have struggled to cope with the most aggressive monetary tightening campaign since the 1980s. Financial heavyweights including hedge fund billionaire Bill Ackman and former Federal Reserve Bank of Dallas President Robert Kaplan are among those warning of more banking stress to come.
“Confidence in a financial institution is built over decades and destroyed in days,” Ackman, chief executive officer of Pershing Square, said on Twitter. “As each domino falls, the next weakest bank begins to wobble.”