The media reports that PacWest Bancorp, which is in a difficult situation, is considering selling, breaking up, or increasing its capital.
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The regional bank is currently exploring potential options for its future existence but has not yet decided on this issue. After the banking industry crisis, in which three American financial institutions collapsed, the value of PacWest Bancorp shares fell. The media, citing anonymous sources, report that it is the situation with the share price that is a deterrent for the bank in deciding its future.
Few people are interested in buying this financial institution as a uniform structure. The future buyer may be forced to compensate for losses on some loans of an institution. Such a prospect, involving additional costs, complicates the sale process.
Since the beginning of March, the cost of a financial institution has decreased by about 85%. This state of affairs is due to the general trend in the banking sector, in the context of which investors refuse any transactions with regional lenders amid concerns related to the turmoil in the industry. Doubts and fears intensified earlier this week when it became known about the bankruptcy of First Republic Bank.
Seeking Alpha reported on Wednesday, May 3, that the value of PacWest Bancorp shares decreased by 23% after it became known about the potential sale of the bank and other strategic concepts of the lender’s continued existence.
During the earnings report last month, the financial institution stated that the situation with deposits had stabilized after a sharp outflow in March. The state of affairs observed at the beginning of spring raised concerns about the financial health of the bank and forced it to increase liquidity.
PacWest Bancorp may sell the loan financing business to free up capital and reduce its balance sheet. This action may be autonomous concerning the entire structure of the bank. Autonomy means that a financial institution can reduce the volume of the business system without its fundamental and transformative changes.
PacWest Bancorp currently has about 70 branches, mostly in California. The total value of the financial institution’s assets is about $44 billion.
The possible options for PacWest Bancorp’s actions became known on the same day when the president of the Federal Reserve Bank of Dallas, Robert Kaplan, said that the crisis in the banking industry is in an active phase and is not close to completion. He also noted that the central bank of the country should not implement the tactics of raising interest rates, as banking problems are increasing.
Robert Kaplan talks about the acceptability of the so-called hawkish pause when rates do not rise, but a signal is given that regulators are ready for tough measures. He admitted that the problems in the banking sector may in the future be much more serious and exceed the level of understanding of the situation that exists at the moment.
Investors are still concerned about the prospects of regional banks. After regulators took control of First Republic Bank and put it up for auction on Sunday, and JPMorgan Chase agreed to acquire it, shares of regional financial institutions began to fall. The current situation has worsened the state of affairs, for which even up to this point the defining characteristic was total ambiguity in the absence of a clear understanding of the image of the future. The March collapse of Silicon Valley Bank and Signature Bank caused doubts and uncertainties that have become widespread.
Some experts argue that the measures taken by regulators are highly likely not to become an obstacle to the process of an active flow of deposits to the largest banks in the future.
