PacWest Bank shares reportedly fall more than 50 percent in after-hours trading

Shares of Beverly Hills-based PacWest bank plunged 50 percent in after-hours trading on Wednesday after it emerged the bank sought help for a sale or injection of fresh capital — and a closely watched financier warned of falling dominoes .

PacWest bank is seen as vulnerable because it has a lot in common with Silicon Valley Bank, which went under on March 10 – the first to fall.

Both PacWest and SVB are California-based and have strong ties to the embattled tech community, and they both have large amounts of uninsured deposits — which exceed the $250,000 federally protected limit.

PacWest is also highly subject to fluctuations in commercial real estate.

Analysis by Barrons found that commercial real estate loans amounted to more than 375 percent of PacWest’s capital at the end of December — significantly more than the 300 percent maximum set by federal guidelines.

In addition, the most volatile real estate loans, for land and construction, represented nearly 140 percent of the bank’s capital.

PacWest’s troubles come under President Paul Taylor, who was hired in the summer and soon announced as the bank’s new head when former CEO Matthew Wagner announced his retirement to begin in 2023.

Some of the bank’s recent deals include $107 million in construction financing, agreed in January of this year, for a 224-unit apartment complex in Brooklyn’s Gowanus neighborhood.

The bank reached a $134.5 million deal in August 2021 to convert an office tower in White Plains, New York into a 13-story, 255-unit multifamily building.

And in November 2017, she issued a $28 million construction loan for a student residence in Berkeley, California.

Commercial real estate can be risky as it can be greatly affected by a downturn in the economy.

On Wednesday, Bloomberg reported that PacWest icommissioned investment bank Piper Sandler to help her explore her next steps, including a sale. The bank also considered raising fresh capital.

While shares held steady for most of the day, Bloomberg’s report sent shares down 50 percent after hours.

Six weeks ago, as the dust settled on SVB’s implosion, PacWest said it had strengthened its access to cash by raising $1.4 billion through a loan facility from Apollo-backed investment firm Atlas SP Partners.

The bank has been in the spotlight for several weeks – although it is significantly smaller than the three that have been taken over by federal authorities to date: SVB on March 10, Signature Bank on March 12, and First Republic on May 1.

PacWest has locations in California, Durham, North Carolina and Denver, Colorado.

Last month, PacWest reported that it had lost more than $5 billion in deposits in the first quarter, but said it turned the tide and had received more than $1 billion in inflows since March. In the same update, PacWest announced a net loss for the quarter of $1.21 billion.

Some consumers have withdrawn their money from the bank for fear that if the bank fails, they will run out of all their money. Federal guarantees with banks only cover the first $250,000 in deposits.

Shares of PacWest are down 77 percent since early March.

PacWest is far from the only faltering bank.

Later on Wednesday, Western Alliance Bancorp attempted to reassure markets by saying it had not experienced any unusual deposit flows and had ample liquidity.

The Phoenix-based regional lender suffered a 23 percent drop in its share price, but said it “reaffirmed its financial strength and deposit growth expectations in response to recent industry events.”

The jitters in the sector come after a period of relative calm and could limit the availability of credit across America and hurt growth.

Federal Reserve Chairman Jerome Powell reiterated Wednesday that the country’s banking system was resilient while delivering a 25 basis point rate hike. Powell said bank deposits had stabilized.

Some financiers disagreed.

“Trust in a financial institution is built up over decades and destroyed in days. As each domino falls, the next weakest bank begins to wobble,” billionaire investor Bill Ackman wrote in a tweet.

He called on regulators to issue a broad deposit guarantee.

“Until investors are rewarded for betting on a wobbly bank, there will be no bid and the best sale is the last price,” he wrote.

This is according to a report from Monday, obtained by Forbesthe Federal Deposit Insurance Corp (FDIC), which has protected the first $250,000 since the 2008 crash, came up with the idea of ​​updating its rules.

The FDIC didn’t provide a detailed plan, but said it might be worth considering a scheme where the $250,000 limit could be temporarily increased or extended — for business customers only.

“The recent failures of Silicon Valley Bank and Signature Bank, and the decision to adopt systemic risk exemptions to protect the uninsured depositors at those institutions, have raised fundamental questions about the role of deposit insurance in the US banking system,” he said. FDIC Chairman. Martin Gruenberg.