With the announcement of the $3.5 billion sale of loans to alternative investment manager Ares Management, PacWest (PACW) gave a regional bank that had been severely harmed early this year an additional boost.
PacWest stock rises 4% on Monday as a result of the agreement, the most recent of numerous steps taken by the Beverly Hills, California-based lender to reduce its balance sheet. Other local banks also increased.
KBW Regional Bank Index (BKX)
Following the demise of Silicon Valley Bank on March 10, a number of regional lenders battled to retain depositors, including PacWest. On May 4, the week after regulators seized San Francisco-based bank First Republic and sold the majority of its operations to JPMorgan Chase (JPM), regional bank stocks reached a year-to-date low.
However, since then, PacWest stock rises for four of the past six weeks on the belief that regional banks’ worst days are behind them. The KBW Regional Bank Index (BKX) has increased 9% throughout the time period, beating the S&P 500. The index ended last Friday with a 5% decline and a marginal decline the week before.
The stabilization of bank deposit withdrawals is another encouraging development. Approximately $99 billion in deposits have been recovered by commercial banks since the second week of May, according to figures made available by the Federal Reserve on Friday. Their deposits have decreased by 6% since April 2022, when they peaked.
High-interest rates and the potential for stricter capital requirements for banks with assets greater than $100 billion continue to put pressure on many banks, making it more challenging for them to turn a profit.
The acute phase of bank stress is over
A number of US bank executives reduced their predictions for net interest income—the critical difference between what banks earn on loans and pay for deposits—earlier this month.”The acute phase of bank stress is over, but a long and winding road remains,” Wedbush analyst David Chiaverini said in a research note on Monday. Wedbush expressed a “cautious outlook” for the second quarter’s results, predicting that until banks start reporting in the second half of July, net interest income will continue revised downward.
The chief financial officer of Western Alliance (WAL), a different regional bank that battled to retain customers after Silicon Valley Bank went under, told Yahoo Finance on Friday that his organization’s deposits were increasing following the turmoil of March. The CFO, Dale Gibbons, stated, “We’re growing deposits again, we’re up quarter to date, and we plan to be up quarter to date by the end of this month.