Shares of U.S. bank PacWest Bancorp have experienced a sharp decline in premarket trade, fueling concerns of a deepening banking crisis.
The Los Angeles-based lender confirmed ongoing discussions with potential partners and investors regarding strategic options, including a possible sale or capital raising.
PacWest’s plummeting value
PacWest’s shares dropped 37% in premarket trade and have lost 29% since Monday.
This brings the total decline in the bank’s value this year to 72%, making it one of the worst-performing constituents on the small-cap S&P 600 regional banks index, which has lost a third of its value in the same period.
The bank reported a loss of $1.1 billion attributed to shareholders for the first quarter of the year.
The announcement has also impacted other regional lenders. Western Alliance Bancorp shares fell 17%, despite assurances that it had not seen unusual deposit outflows following the sale of collapsed lender First Republic Bank to JPMorgan Chase & Co.
Other banks, including Zion Bancorporation, KeyCorp, Valley National Bancorp, Comerica, and First Horizon, experienced drops between 2% and 6%. Consequently, the SPDR S&P Regional Banking ETF lost 2.8% of its value.
Growing concerns about a worsening banking crisis
Susannah Streeter, head of money and markets at Hargreaves Lansdown, highlighted that this issue is raising concerns that the banking crisis could deteriorate further, with worries about deposit flight and a lack of asset diversification among smaller lenders.
The collapse of First Republic Bank, the third major casualty of the most significant crisis to hit the U.S. banking sector since 2008, has reignited the decline in shares of regional lenders this week.
On Wednesday, U.S. Federal Reserve Chair Jerome Powell reiterated that the banking system remains resilient despite the strains experienced in March, following the central bank’s 25-basis point rate hike and signaling a potential pause in the tightening cycle.
Russ Mould, investment director at AJ Bell, noted that the Fed is more likely to pause rate hikes due to the prospect of a recession and increasing struggles among banks, rather than falling inflation.
Canceled deals and the impact on customers
Amid the sector’s turmoil, First Horizon Corp and Toronto-Dominion Bank Group called off their $13.4 billion deal as they lacked clarity on whether they would receive regulatory approvals.
Customers with deposits in U.S. banks insured by the FDIC can rest assured that if their bank fails, they will be reimbursed for amounts up to $250,000.
Caleb Silver, editor-in-chief of Investopedia, suggests that customers concerned about their bank’s stability should monitor stock prices, quarterly and annual reports, and set up Google alerts for news stories about their bank.
Understanding the context of public companies selling shares or issuing new ones is also crucial, as demonstrated by First Republic’s move earlier this year when facing well-known hazards, which led to an exodus of investors and depositors.
