PacWest Bancorp is moving to shore up liquidity to protect itself after customers pulled 20% of their deposits since the start of the year.
(Bloomberg) — PacWest Bancorp is moving to shore up liquidity to protect itself after customers pulled 20% of their deposits since the start of the year.
The regional bank, whose shares have tumbled 58% this month, obtained $1.4 billion from a financing facility from Apollo Global Management-owned investment firm Atlas SP Partners and abandoned a separate push to raise capital because of market volatility, it said in a statement Wednesday.
PacWest and other regional US banks have been reeling since the collapse of three lenders earlier this month. Rising interest rates have depressed the value of the companies’ fixed-income investments, and a sudden surge in customer withdrawals has forced them to sell assets at a loss.
“In light of the current volatility in the market and depressed market prices for regional bank stocks, as well as the availability of other options to enhance capital, the company determined it would not be prudent to move forward with a transaction at this time,” the Beverly Hills, California-based lender said of its attempt to raise capital.
The shares closed down 17.12%.
Still, PacWest also said “market developments and strategic positioning” helped ease its losses from $791 million at the end of last year to $704 million as of March 17 — an indication the global rally in bonds boosted the value of the bank’s securities portfolio, according to Keefe, Bruyette and Woods analyst Christopher McGratty.
PacWest has already borrowed $3.7 billion from the Federal Home Loan Bank System, $10.5 billion from the Federal Reserve’s discount window and $2.1 billion from the bank term funding program as of March 20. The bank cited those liquidity-enhancing measures in deciding not to proceed with the separate effort to raise money.
PacWest also said “market developments and strategic positioning” helped ease its losses from $791 million at the end of last year to $704 million as of March 17. A global bond rally boosted the value of the bank’s securities portfolio, according to Keefe, Bruyette and Woods analyst Christopher McGratty.
First Republic, a San Francisco-based lender known for catering to wealthy tech executives, has lost 87% of its stock-market value this year as customers pulled their money. An attempt by 11 stronger banks to shore up the firm by depositing $30 billion last week gave the company and advisers including JPMorgan Chase & Co. more time to find a way to resolve the strains. Wall Street leaders and US officials discussing an intervention at First Republic are exploring the possibility of government backing to encourage a deal.
Deposits ‘Stabilized’
At PacWest, about $4.9 billion of the $6.8 billion of this year’s total outflows came from its venture-banking segment, according to the statement. Deposit levels have “stabilized,” it added. The bank had more than $11.4 billion of cash on hand as of March 20, which exceeds total uninsured deposits at the bank of about $9.5 billion.
The shares dropped 3.6% at 10:47 a.m. in New York.
“Their Treasury staff has done an excellent job stockpiling liquidity so that actual losses on underwater securities need never be experienced,” Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University, said in an email. “The use of the Atlas SP facility (which uses longer-term assets as collateral) is quite smart although undoubtedly expensive. This company will be fine in every circumstance but a generalized panic run, in my view.”
Atlas SP is an investment firm led by former Credit Suisse Group AG executive Jay Kim. It got its start as a standalone operation last month after Apollo closed the purchase of the Swiss bank’s securitized-products group. Kim previously was a managing director at the bank and head of securitized products. Apollo is the majority shareholder of Atlas SP.
“Without a willingness to raise capital at these levels, we would expect the company to continue to shrink the asset base, and these facilities do give management time to reduce assets, where possible, and ‘raise capital’ by shrinking the balance sheet,” RBC Capital Markets analyst Jon G. Arfstrom wrote in a note Wednesday. “At this point, that is what we are likely to see from the company.”
(Updates with bank losses, analyst comment from fifth paragraph.)
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