BANKING CRISIS - PART 5 - Fall of PacWest Bancorp?

PacWest Bancorp 

PacWest Bancorp, a regional bank that has been struggling since the collapse of three California-based rivals, is considering a variety of strategic options, including a sale, a breakup, or a capital raise. While it is open to a sale, the company has not yet initiated a formal auction process, and it may be difficult to find a buyer willing to purchase the entire bank. This is because the bank comprises a community lender called Pacific Western Bank, as well as several commercial and consumer lending businesses, and a potential buyer would have to take into account the potential need to mark down some of its loans. PacWest's shares have lost about 85% of their value since the beginning of March, and its market value was around $772 million. Despite concerns about the bank's health earlier this year, it reported that deposits had stabilized after a rush of withdrawals in March, and it has been considering selling its lender finance business to free up capital and reduce its balance sheet. PacWest has approximately 70 branches, mostly in California, and around $44 billion in assets. 

Regional Woes 

• Several regional banks in the US faced a crisis due to deposit runs that caused the collapse of three California-based banks and one in New York. 
• The value of bonds purchased by regional banks at lower rates decreased due to rising interest rates, causing their stocks to fluctuate, and some banks had to sell these assets at a loss. 
• PacWest Bancorp, made statements in March to reassure investors of its stability and stated that deposits had stabilized. 

Steps Taken by PacWest to bolster its liquidity:

• PacWest did not pursue capital-raising efforts as it deemed it impractical under the existing conditions. Instead, PacWest secured $1.4 billion from a financing facility offered by Atlas SP Partners and strengthened its finances using cash from several federal programs. 
• PacWest Bancorp addressed the deficiency in its deposits by utilizing cash reserves from its balance sheet. The bank offered $5.1 billion of its assets to the Federal Reserve as collateral, enabling them to obtain an extra $3.9 billion in liquidity.
• PacWest Bancorp sold its loan portfolio worth $5.7 billion to Kennedy Wilson Holdings Inc., a real estate investment firm.
• The stock has rebounded a bit and has gained 175% so far (Mid June'23) from its lowest point back in early May'23.

At the current moment, the steps taken by PacWest to bolster its liquidity has made the bank relatively stable and there's little possibility for them to file a bankruptcy.

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