PacWest Bancorp (NASDAQ: PACW) jumps over 35.94% to $7.83 in pre trading session on Monday as the company is leading increases among US regional banks after stating that its business is “sound” and that it is reducing its quarterly dividend to one cent in order to speed capital-building ambitions.
Other regional lenders, like Western Alliance Bancorp and Zions Bancorp, rebounded from a selloff spurred by concerns about the stability of the financial system and the recent failure of numerous rivals. The bounces come after a turbulent week for regional lenders, which culminated in a dramatic climb higher on Friday headed by PacWest.
“The potential for a meaningful dividend cut shouldn’t come as a surprise to investors,” Keefe, Bruyette & Woods analyst Christopher McGratty said, especially given the stock’s current valuation and the company’s “in the midst of a strategy shift that prioritizes capital build.”
Since the turbulence began in early March, four regional banks have failed, drawing investor attention to concerns about unrealized losses on bond investments and deposit levels. Real estate loans has also received attention.
The KBW Regional Banking Index fell 8% last week, the largest weekly decrease since the crisis began in mid-March. However, bank stocks rebounded on Friday, capping off the week with a bang as PacWest rose 82% for its greatest single-day gain on record. This year, the stock has dropped 75%.
According to S3 Partners data, short interest as a proportion of float for PacWest has risen to about 19% in recent weeks.
The S&P 500 financials index is on the cusp of resuming its decline from its 2007 high. If it breaks past that barrier today, it would be an alarming indicator for the larger stock market, according to Jim Roppel, founder of Roppel Capital Management, a hedge-fund manager.
Morgan Stanley analysts stated in a report Monday that possible positive catalysts for US bank equities include the Federal Deposit protection Corporation increasing deposit protection and the Fed addressing the road plan for stopping quantitative tightening.
There are still concerns about the stability of these banks. Fitch has placed PacWest on “Rating Watch Negative,” noting the implications of a prospective deal from the strategic assessment it is doing as well as “the uncertainty regarding the bank’s strategic direction.”
