PacWest shares have fallen since last March by about 90% of their value, and in trading yesterday, Wednesday, the stock plunged more than 56% in post-close trading, at a time when the bank is moving towards new “strategic options”. .”
And reports cited knowledgeable sources that the bank had engaged investment bank Piper Sandler to help PacWest explore these strategic options, including the “sell” option, explaining at the same time that “No formal sale has yet been initiated, and the bank is also considering raising capital.
So PacWest is the latest (midsize) U.S. bank to seek a “financial lifeline” amid the worst crisis since 2008. The bank said in a statement it was examining “all options.” The crisis comes six weeks after PacWest announced it had raised $1.4 billion through a loan facility from investment group Atlas SP Partners. Los Angeles-based PacWest has a market capitalization of around $750 million.
Similar to the case of Silicon Valley
BuckWest has drawn negative attention due to its similarity to Silicon Valley, which collapsed in March, based on its relationship with the “tech community”, as well as the amount of “uninsured” deposits and unrealized paper losses in its securities portfolio. .
Back West Bank lost more than $5 billion in deposits during the first quarter (according to official data). PacWest halted releases and saw more than $1 billion in inflows since March. In a Wednesday update, the bank said deposits totaled $28 billion as of May 2, far less than Silicon Valley and the First Republic. But the bank said “our available cash remains strong” and 75% of deposits are covered by federal insurance, up from 71% at the end of the quarter. The bank’s shares have fallen 77% since early March.
The domino effect continues
Virgin International Markets executive director Ahmed Moati has said in exclusive statements to Sky News Arabia Economy website that what PacWest Bank is currently witnessing confirms the possibility of an extension of the “domino effect”. in light of the growing concerns associated with small and medium banks in the United States.
And he added: “These concerns were implicitly underlined by the US Federal Reserve in its statements (Wednesday), despite its assertion that the country’s banking system is strong and that the big banks are safe,” indicating that members of the the Fed have acknowledged the reality of the crisis facing small and medium-sized banks, and blame it on “mismanagement” and not a crisis in the banking sector as a whole.
He inferred this from Silicon Valley Bank, which had no risk manager, operated without strong credit terms, and relied on investing in US Treasuries (in light of high interest rates) to suffer significant losses when bond yields began to fall 3.5 percent.
And he adds: “With everything that has happened (starting with the collapse of Silicon Valley, then Signature, and finally First Republic Bank), it is natural that this automatically raises concerns among investors, especially with regard to small and medium banks that face the same risks, and so the next few days could actually see PacWest fail.” Being the fourth in this series, and other banks may not either no longer be excluded.
Regarding the magnitude of this impact on the markets, the CEO of Virgin International Markets, vi market, believes that “the impact will be small if PacWest falters and will not be like the effect of Silicon Valley”, believing that the consequences of the current crisis crisis will not reach the repercussions and impact of the mortgage crisis, “even if it occurs.” The domino effect, it includes the small and medium banks… The biggest fear is that this effect includes the big banks, while the Fed confirms their solidity and that they are safe.
The impact of the banking crisis on monetary policy
In a related context, Aris Protopappadakis, professor of economics at the University of Southern California, speaks on the site “Sky News Arabia Economy”, in general, about the impact of the crises which thus threaten American banks, on monetary and financial policy options in the next stage, and indicates that:
The banking problems that the financial sector is crying out for are just “the noise of a party trying to influence the Fed”. The Fed’s inflation target isn’t going to be sabotaged by a few “reckless” banks who don’t seem to notice that if interest rates bottom out near zero, they have nowhere to go until until the Fed decides to deal with inflation.
“Also, there are appropriate ways to deal with failing banks, but easing monetary policy is not one of them,” he adds.
He points out that “there was a common rule that was used to understand Fed policy, which is the Taylor rule (..)”, pointing out that “monetary policy is not very strict so far, and that “the Federal Reserve uses velvet gloves in the economy instead of an iron fist. ! as he said.
And while stressing that “the US economy remains strong, while the inflation rate is well above target”, he said: “We hope that they (monetary policymakers) can further reduce inflation. ‘inflation without a major recession… There may be more shrinkage’.
The Fed raised the interest rate by 25 basis points, in line with market expectations, but the monetary policy statement deleted a sentence that had appeared in the previous statement stating that “the committee expects a further policy tightening is appropriate to achieve the 2 percent inflation target.
The bank said: “The Open Market Committee will closely monitor the information received and assess the implications for monetary policy, taking into account the cumulative policy tightening.”
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