PacWest stocks fall 20%

PacWest, a struggling regional bank, saw its shares decline by 21% in early trading on Thursday after announcing that deposit outflows resumed in the first week of May. The bank said in a securities filing that its deposits had declined by 9.5% during the week of May 5, with most of the outflows occurring after media reports suggested the lender was exploring strategic options. Despite the outflows, the bank said it was able to fund those withdrawals with available liquidity, which now stands at $15 billion, compared with $5.2 billion in uninsured deposits.

This update contrasts with the bank’s announcement on May 4 when it stated that it was not experiencing “out-of-the-ordinary deposit flows” and that total deposits had increased since the end of March. During the first quarter, PacWest’s total deposits declined by 16.9%, and the bank had previously indicated that it would use strategic asset sales to reshape its balance sheet.

Wall Street analysts speculate that the recent outflows may have come from PacWest’s venture capital customers. While this is not what the bank wants to report, if the outflows are truly from venture depositors and not the core bank, it may be better news. RBC Capital Markets analyst Jon Arfstrom believes that the bank is borrowing more to replace those deposits.

Following PacWest’s filing, Western Alliance released its own update, stating that total deposits have grown by $600 million since May 2. However, shares of that bank were down about 4% in morning trading. Shares of Zions Bancorp also dipped 3.3%, and the SPDR S&P Regional Banking ETF (KRE) was down 2.6%.

Since March, the regional banking sector has been under pressure due to concerns about the impact of higher interest rates. This led to a run on deposits at Silicon Valley Bank, which was seized by regulators. Signature Bank soon followed, and First Republic was seized and sold to JPMorgan before the market opened on May 1.