Perhaps Jamie Dimon’s All Clear regarding the bank crisis – telling everyone to take a deep breath after JP Morgan Chase (NYSE:JPM) took over First Republic Bank (NYSE:FRC) was a bit premature.
In after-hours trading, PacWest’s (Pacific Western Bank) (NASDAQ:PACW) shares are cratering – currently down by over 57%. In March, PacWest shares were over $27. At market close today, shares traded at around $6.42. That amount has now been slashed to $2.67 a share as fears of failure rise.
Reuters reported earlier today that PacWest was “exploring strategic options” – typically a euphemism for a sale. To quote the report:
“PacWest is hoping to avoid the fate of other regional lenders that were taken over by U.S. regulators in the last two months by proactively finding a solution that bolsters its finances, the source said, asking not to be identified because the matter is confidential.”
PacWest struck a positive tone during its earnings report last week. PacWest CEO Paul Taylor stated on April 25th:
“Our strong banking franchise and our loyal, diversified customer base have driven us through one of the most challenging recent periods in the banking industry. Our deposits have stabilized with total insured deposits increasing from 48% of total deposits at year-end to 71% of total deposits at March 31, 2023.”
Yet the optimistic statement may be veering from reality as PacWest looks for a suitor – probably another GSIB or globally systemically important bank.
Other regional banks are suffering, too, proving that policymakers and regulators have more work to do to reinstill confidence in the US banking system. While the bank failures pile up, regulators have admitted they were asleep at the wheel when reviewing risk. At the same time, management failed to react fast enough to rising interest rates that have moved higher faster than at any time in history.
As we have learned from the past, the next crisis is something totally unexpected but seems obvious in hindsight.
