Regional banks rebound for second day as PacWest cuts dividend, says business ‘fundamentally sound’

A Pacific Western Bank branch in Encino, Calif., on Saturday, April 22, 2023.

Morgan Lieberman | Bloomberg | Getty Images

PacWest Bankcorp led a relief rally in regional banks again Monday, after the struggling lender cut its dividend to build capital amid the banking crisis.

Shares of PacWest rose 38% in premarket trading Monday, and surged to a nearly 82% pop on Friday. The company announced late Friday night a dividend cut to just 1 cent per share from 25 cents per share in the previous quarter. PacWest CEO Paul Taylor assured investors that the bank’s business remains “fundamentally sound.”

Other regional banks also rebounded for a second day. The SPDR S&P Regional Banking ETF (KRE) rose 2.8% in premarket trading, following a 6.3% rally on Friday. Western Alliance jumped 8% in premarket Monday after gaining 49% in the previous session, and Zions Bancorp rose 4% Monday.

“Given current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements, we view reducing the dividend as a prudent step to accelerate our plans to build capital,” Taylor said in a press release.

Concerns about regional banks lingered after regulators seized First Republic last week, resulting in the third failure of a U.S. bank since March. A rapid increase in interest rates has burdened banks with long-term bond funds, which has led to a flight of deposits. Institutions with a high proportion of uninsured deposits were particularly vulnerable because customers feared losing their savings in a bank run.

See diagram…

Regional bank ETF 1 day

PacWest said last Wednesday it was exploring “all options” and confirmed it was in talks with several potential partners and investors. The California-based bank said it had not experienced “out of the ordinary deposit flows” following First Republic’s collapse.

Shares of PacWest are down more than 40% in May and 75% year-to-date through Friday. The SPDR Regional Banking ETF is down 10% in May and 35% for the year through Friday.

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