PacWest Stock Soars After Slashing Quarterly Dividend, Says Business Is 'Sound'; Regional Banks Extend Rally

Backwest Bancorp. (PACW) – Get a free reportIt extended its latest rally on Monday, sending a host of regional bank stocks higher, after the troubled Los Angeles-based lender slashed its quarterly dividend in order to conserve liquidity and bolster its balance sheet.

In an update late Friday, PacWest said it will pay a dividend of 1 penny per common share, down from the previous level of 25 cents, citing current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements.

The bank confirmed reports last week that it was in talks with potential partners amid a broad study of strategic alternatives, which could include a new capital raise or the spin-off of Pacific Western Bank’s franchise from its other consumer and commercial lending businesses.

PacWest canceled plans to raise capital in March, as bank stocks took a hit in the wake of the Silicon Valley bank collapse, and last week noted that 75% of its total deposit base of $28.2 billion had fallen within the FDIC’s protection threshold.

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“Our business remains fundamentally sound, and we will continue with our strategy to focus on our relationship-based community banking model,” CEO Paul Taylor said late Friday.

Shares of PacWest, up 81.7% on Friday, posted another 35.6% gain in pre-market trading, indicating an opening bell price of $7.81 per share. Western Alliance Bancorp WAL jumped 10.5% to $29.90 per share, while Zions Bancorp rose 3.8% to $24.66 per share.

Shares of regional banks have risen strongly since the Federal Reserve released data late Thursday indicating that most of the lending from its emergency facility was directed toward First Republic before it was sold to JPMorgan Chase late last month.

Banks borrowed just $5.3 billion from the Fed’s main discount window over the seven-day period ending May 3, according to Fed data, down from $73.9 billion delivered during the prior period.

However, the bulk of that drop was related to a change in the borrowing allocation from First Republic Bank, which was sold to JPMorgan Chase JPM last Sunday. First Republic loans were rated as “other credit,” and that number rose nearly 34% to $228.2 billion.

Borrowing from the Fed’s new bank term financing program, which allows banks to exchange high-quality assets for one-year loans, fell by $5.5 billion to $75.8 billion.