PacWest Bancorp PACW stock at record low – insolvency ahead?

Key Takeaways:

• PacWest stock PACW plunges to a record low after a 60% daily decline.
• Concerns about the possible sale triggered another bank run.
• Experts assume insolvency ahead due to panic despite the bank’s strong fundamentals.

YEREVAN (CoinChapter.com) – Beverly Hills-based bank holding company PacWest Bancorp saw its stock PACW plunge to an all-time low of $3.17 in presale on May 5, after the bank’s readiness to “explore strategic options” sent investors scrambling.

PACW stock dumps as US banking sector woes persist

In detail, the PACW price per share plunged 80% in early March, hit by the Silicon Valley Bank contagion that has plagued middle-sized US lenders since, tanking First Republic Bank. However, PacWest representatives claimed the deposits increased since and confirmed it’s in talks with several potential investors, seeking to calm markets after the stock rout.

The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news. Our cash and available liquidity remains solid and exceed our uninsured deposits.

commented the bank.

However, despite the Bank’s assurances and Fed Chair Jerome Powell’s assessment of banking sector health, the depositor angst remains high. On May 4, PacWest representatives told Bloomberg they are “weighing strategic options” up to considering a possible sale. The statement was enough to send potential depositors running. The PACW price dropped another 60% in the previous 24 hours.

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People associated with the matter, who asked not o be disclosed, asserted that the company hadn’t started a formal auction process yet, despite being open to a potential sale.

What’s ahead for PacWest?

Judging by the plunging stock price and the depositors’ distrust, the bank is likely to declare insolvency in the coming days.

Additionally, PacWest balance sheet carries securities vulnerable to high-interest rates, and a share of its deposits are uninsured. Greg Nini, a finance professor at Drexel University, called those vulnerabilities “important ingredients” in the possible prognosys. “It sure sounds like collapse is possible,” he said.

Conversely, Julian Vogel, a finance professor at San Jose State University, disagreed with the grim outlook, at least from an investor standpoint.

I really don’t think it should be on the brink. Those people’s money is absolutely safe. Even if the company goes down, they will get their money, period. While I understand that the drop in stock price can be fear-inducing, it’s not necessarily related to the overall performance of the company on a day-to-day basis.

said the Professor.

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Vogel also cited investor panic as the main reason behind the failing bank’s troubles. He asserted that First Republic and Silicon Valley Bank were regionally close to PacWest, which means investors are likely to interact with each other and “spread the panic.”

“If consumers keep panicking, this could be the start of a new phase, and there will be a lot more ahead,” concluded Vogel.

History has seen bank runs from solid institutions due to baseless panic. However, the Fed’s efforts to build trust among investors might be futile, as discontent with the fiscal policy is on the rise.