PacWest Bancorp (PACW) shares slumped lower in pre-market trading after the lender said dumped plans to raise fresh capital but secured a new round of senior funding, suggesting pressures on regional banks will continue to affect markets despite moves by the U.S. Treasury to extend deposit protections.
In a Securities and Exchange Commission filing published Wednesday, PacWest said that more than 65% of its deposit base was below the $250,000 threshold for Federal Deposit Insurance Corp. protection, adding that around $600 million were backed by tradeable securities.
However, deposits are down around 20% from the end of last year, at $27.1 billion, leaving PacWest with $11.4 billion in available cash as of March 20 and a secured $1.4 billion in "fully funded cash proceeds" from Atlas SP Partners.
PacWest decided that continuing with its previous capital raising plans "would not be prudent" given market conditions and "the current volatility in the market and depressed market prices for regional bank stocks."
The bank also revealed it had borrowed around $10.5 billion from the Federal Reserve's discount window, $3.7 billion from the Federal Home Loan Bank System and a further $2.1 billion from the Fed's new Bank Term Lending Facility.
“I am proud of the efforts the entire PacWest team has taken in these challenging times to enhance our liquidity and preserve franchise value,” said CEO Paul Taylor. “We have remained steadfast in our commitment to our customers and our communities, and we are grateful for their support and loyalty. As we look ahead, we have continued confidence in the strength of PacWest and are encouraged by the stability we have seen in our deposits and liquidity over the past week.
“Additionally, we continue to be encouraged by the clear message from government officials, regulatory agencies, and industry leaders, including Secretary Yellen’s recent remarks regarding the protection of smaller bank depositors,” he added. “We look forward to continuing to sharpen our strategic focus, bolster our balance sheet, and be a proven partner to our customers.”
PacWest shares were marked 9.5% lower in early Wednesday trading immediately following its financial update to change hands at $11.10 each.
The sharp moves lower suggest the improved sentiment in regional banking shares, following on from Treasury Secretary Janet Yellen's suggesting that officials could offer extended support to American depositors, may be difficult to maintain.
Yellen defended moves by the Treasury, in concert with the FDIC, to guarantee deposits at the failed Silicon Valley Bank and Signature Bank during a speech to the American Bankers Association yesterday, noting that "similar actions could be warranted if similar institutions suffer deposit runs that pose the risk of contagion".
Her remarks followed a report from Bloomberg that suggests the Treasury is studying options that would allow for a temporary guarantee of all U.S. deposits, possibly by leveraging the Exchange Stabilization Fund, without the need for Congressional approval.
At present, the FDIC provides deposit protection up to $250,000 per account, although that limit was increased by the Treasury to protect customers at the failed Silicon Valley Bank and can be lifted if needed to protect an institution the Treasury deems systemically important.
The Mid-Size Bank Coalition of America, a lobby group, is also seeking a blanket deposit guarantee that lasts for at least two years, while Democratic Senator Elizabeth Warren, a vocal critic of U.S. banking regulations, is asking Congress to lift the cap on FDIC insured deposits, potentially to as high as $10 million, in order to truly stem the regional banking sector crisis.
