Pacific Western Shares Slide as Bank Reports Deposits Fall, Pledges More Assets as Collateral

A Pacific Western Bank location in Irvine, Calif., on May 3, 2023. (John Fredricks/The Epoch Times)

Shares of Pacific Western Bank fell again on May 10 after the lender confirmed it continued to see deposit outflows of nearly 10 percent in the first week of the month.

The California-based lender disclosed in a securities filing that its deposits fell around 9.5 percent during the week of May 5, with the majority of withdrawals taking place on May 4 and 5, at a time when it confirmed it was exploring “strategic options,” including a possible sale and that it had been in contact with potential investors.

“PacWest funded this decline in deposits with available on-balance sheet liquidity,” it noted.

The bank added that as of May 10, it has $15 billion of available liquidity, which exceeds the $5.2 billion in uninsured deposits by around 288 percent.

Shares of PacWest were down 20.9 percent as of the time of writing.

Other regional banks also appeared to be under pressure, with Western Alliance shares down 2.3 percent, despite announcing on Thursday that its total deposits were nearly $49.4 billion as of May 9, up nearly $600 million from May 2.

Elsewhere, KeyCorp was down nearly 2 percent, and Zions Bancorp was down 3.96 percent at the time of writing.

Deposit Turnaround

The latest disclosure from PacWest marks a stark contrast to an update issued by the bank on May 4, when it said it “has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news,” and that core customer deposits had increased since the end of March.

At the time, PacWest said it had a total of $28 billion in deposits as of May 2, of which 75 percent were insured. It also noted that its cash and available liquidity remained “solid and exceeded our uninsured deposits.”

Thursday’s filing also showed that PacWest’s total deposits declined 16.9 percent, or by $5.7 billion, during the three months that ended March 31, driven primarily by a decrease in retail non-maturity deposits and wholesale non-maturity deposits, although that was offset slightly by an increase of $2.2 billion in time deposits—that is, those with a specific maturity date.

Shares of PacWest were already down more than 50 percent this month, which the bank in Thursday’s filing attributed to the closure of First Republic Bank by regulators earlier this month, adding that this had “heightened market and customer fears of additional bank failures,” including its own.

First Republic Bank was subsequently bought by JPMorgan Chase.

Overall in the last year alone, shares of PacWest are down nearly 80 percent amid concerns about the state of the regional banking sector following weeks of turbulence initially prompted by the collapse of Silicon Valley Bank and Signature Bank.

‘Increased Risks, Uncertainties’

“These recent events, and the ongoing news coverage of these events, has increased certain risks and uncertainties related to our business and future prospects,” the bank said in its latest filing.

In response to ongoing risks and the potential prospect of increased deposit outflows, the bank said it has pledged an additional $5.1 billion of its loans to the Federal Reserve, which has resulted in an additional borrowing capacity of $3.9 billion.

PacWest was the fifty-third biggest commercial bank in the U.S. by asset size as of Dec. 3, 2022, with $41 billion in total assets, according to Federal Reserve data.

Rick Meckler, a partner at Cherry Lane Investments, said PacWest’s announcement that it has $15 billion of available liquidity to cover uninsured deposits is reassuring, however, he pointed to previous instances in which banks have reassured investors of their stability only to later fail.

“It [$15 billion liquidity] is not necessarily viewed as negative. It’s the fact that they have to keep reassuring the market,” he told Reuters. “Investors have seen in the past, banks that are constantly forced to issue statements to shore up confidence suggests there are issues that require them to do that,” Meckler added.

Those comments were echoed by Seth Carpenter, chief global economist for Morgan Stanley, during a recent panel hosted by the Federal Reserve Bank of New York, Bloomberg reports.

Carpenter pointed to increasing monetary tightening by the central bank, noting that “a lot of what’s going on is exactly what you should have thought you were trying to do as a policymaker.”

“Is there an additional exogenous component? I think therein lies the real question of what could go wrong,” he added.