PacWest (PACW) has announced the sale of $3.5 billion in loans to alternative investment manager Ares Management, providing another boost for a regional bank that was battered during industry chaos earlier this year.
The deal, the latest of several moves by the Beverly Hills, Calif., lender to shrink its balance sheet, helped push PackWest shares up more than 11% during Monday morning trade. A number of other regional banks also rose.
BacWest is one of several regional lenders that have struggled to retain depositors after the Silicon Valley bank failed on March 10. Shares of regional banks hit a year-to-date low on May 4, the week San Francisco-based First Republic bank was taken over by regulators and sold the bulk of its operations to JPMorgan Chase.
But since then, those stocks have rallied for four of the past six weeks on optimism that the worst is over for regional banks. For the period, the KBW Regional Bank Index (^ BKX) rose 9% outperforming the S&P 500. The index closed down 5% last Friday and fell slightly in the previous week.
Another positive note for banks is that deposit withdrawals have stabilized. Commercial banks have recovered nearly $99 billion in deposits since the second week of May, according to data released Friday by the Federal Reserve. Their deposits are down 6% since their peak in April 2022.
Many banks also still face pressure from higher interest rates and the possibility of stronger capital requirements for banks with more than $100 billion in assets, which will make it difficult to generate solid profits.
Earlier this month, a number of US bank executives revised their estimates of net interest income, which is the crucial margin between what banks make their loans and pay their deposits.
“The acute phase of bank stress is over, but there is still a long and winding road ahead,” Wedbush analyst David Chiaverini said in a research note Monday.
Wedbush reiterated a “cautious outlook” for second-quarter results, with the expectation that there will be more downward revisions in net interest income once banks begin reporting in the second half of July.
The chief financial officer of Western Alliance (WAL), another regional bank struggling to retain depositors after the fall of a Silicon Valley bank, told Yahoo Finance on Friday that his institution’s deposits are surging after the March turmoil.
“We’re increasing deposits again, we’re up quarter-to-date, and we expect to be up quarter-to-date by the end of this month,” said Dale Gibbons, CFO.
Its stock rose more than 5% Monday morning.
Gibbons said Western Alliance was able to win back depositors in part by showing larger clients the bank’s more accurate financial statements under non-disclosure agreements.
“We welcome more regulation,” he also said, noting that higher capital requirements don’t solve every problem. In the case of Silicon Valley Bank, he said “there were definitely some management failures, and regulatory oversight could have been more robust.”
Few banks were under more pressure during March than PacWest, which lost 17% of its deposits in the first quarter and posted a loss of $1.2 billion. Year-to-date, its stock is still down 68.5% as of Friday’s close despite rising from its spring lows.
In May, it said it was exploring strategic actions such as asset sales. Later that month, she sold a $2.7 billion real estate construction loan portfolio to Kennedy Wilson Holdings. It also sold some of the assets of a real estate lending company to Roc360, a New York City firm that lends to real estate investors.
The sale announced on Monday was not completed. The lender received $2.01 billion before transaction costs, with the remaining loans committed but not yet sold.
“This sale, in addition to the approximately $2.36 billion in cash proceeds received from the previously closed sale of National Construction Loans, will improve our liquidity and capital ratios,” PacWest said in its filing with the Securities and Exchange Commission (SEC) for this transaction.
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