PacWest Bancorp (PACW.O) said on Thursday deposits declined last week and the bank pledged more assets as collateral to the U.S. Federal Reserve to increase its borrowing capacity, sending shares tumbling 20% in premarket trading.
The slump dragged down other regional banks, with shares of Western Alliance Bancorp (WAL.N), KeyCorp (KEY.N) and Zions Bancorp (ZION.O) down between 2.4% and 8%.
PacWest pledged an additional $5.1 billion of its loans to the central bank on Wednesday, which the lender said resulted in an additional borrowing capacity of $3.9 billion.
“We pledged additional assets as collateral for borrowings to increase our liquidity position for potential deposit outflows,” PacWest said in a filing.
During the week ended May 5, deposits declined about 9.5%, the bank said, adding the majority of those outflows happened on May 4 and May 5 after news reports said PacWest was exploring options.
The $15 billion immediately available liquidity is more than enough to cover the $5.2 billion of uninsured deposits at the Los Angeles, California-based bank said.
“It ($15 billion liquidity) is not necessarily viewed as negative. It’s the fact that they have to keep reassuring the market,” said Rick Meckler, partner at Cherry Lane Investments.
“…Investors have seen in the past, banks that are constantly forced to issue statements to shore up confidence suggests there are issues that require them to do that,” Meckler added.
Worries about the stability of mid-sized banks have deepened in recent days with investors punishing stocks even of seemingly healthy lenders, despite reassurances from regulators the banking sector is financially sound.
So far this month, PacWest shares have lost nearly 40%. The bank’s shares plunged to a record low last week after it said it was exploring strategic asset sales.
The bank said it intends to complete the asset sales in the second quarter of 2023.
At the end of the first quarter, PacWest had $341.7 million in cash and cash equivalents, which it said would be sufficient to fund cash flow needs over the next 12 months.
Wall Street executives and bank analysts have urged regulators to provide greater protection for bank deposits and consider other backstops, arguing only a strong intervention could put an end to the crisis.
Analytics firm ORTEX said shorting levels in PacWest have decreased slightly over the last 7 days, but the short interest levels are still very high at 21.08%.