Apparently, the crisis in the US banking sector did not come to an end. It is that the shares of PacWest Bank collapsed up to 24% this Thursday after admitting to the SEC a significant flight of deposits.
The financial entity argued that the intervention of other banks and the crisis of many of them that ended in bankruptcies caused a distrust in the regional banks, for which the clients decided to withdraw their money in a panic.
As a result, the engine of a vicious circle is turned on: falls in bank shares scare customers, and they withdraw their deposits, which causes investors to sell more shares and the titles continue to plummet. This was the case with the First Republic and Silicon Valley Bank, something that PacWest now wants to avoid.
PacWest issued a statement saying that the “ May 1 intervention and sale of First Republic Bank heightened market and customer fears of further bank failures, including that of PacWest .” On the other hand, the media reported that PacWest was exploring all its options and holding discussions with potential investors and partners.
“News headlines raised our customers’ fears about the safety of their deposits. During the week ending May 5, 2023, our deposits decreased approximately 9.5%, with most of that decrease occurring on May 4 and 5 after the May 3 evening news.”
Announcement from PacWest.
The bank clarified that, as of May 10, it had available liquidity of 15,000 million dollars and that this figure “exceeded uninsured deposits of 5,200 million dollars, which represents a coverage ratio of 288% .”
To try to get out of the hole, the bank is looking for a way to attract deposits from clients with more attractive remunerations. In addition, it has reduced its regular second-quarter dividend from 25 cents to 1 cent to try to protect its capital and liquidity position.
Due to this news, the main US indices reacted with strong falls: The S&P 500 fell 0.6%, the Dow Jones more than 1% and the Nasdaq 0.3%:
