Regional Banks continue to face an existential risk. The Fed’s rapid rate hike in 2022 caused an imbalance in the holdings of short-term, liquid assets compared to longer-term debt.
PacWest Bancorp (PACW) has a 17% short interest. Bears are betting that this small-cap firm is the next bank to fail. This would follow First Republic, Silicon Bank, Signature Bank, and Silvergate Bank.
Negative media against PacWest incited ongoing panic withdrawals. Last week, the firm pledged more collateral worth $5.1 billion. It pledged the loans to the Federal Reserve Bank to access $3.9 billion in additional borrowing under its discount window borrowing facility.
PacWest needed to disclose this in its 10-Q. It is a material change in its business. PacWest is not in the same cash crunch scenario as SivB and Signature Bank. Still, bears are betting that it is.
First Citizen’s (FCNCA) acquisition of SivB is a massive win. Markets doubled its stock price from a $500 low to $1,236.18 on May 12, 2023. It posted an impressive $20.09 a share of non-GAAP EPS. Revenue gained by 640.6% to $11.11 billion.
The firm acquiring PACW stock would leave shareholders with nothing. It benefits entirely. This increases the risk for PACW holders.
Be wary of PACW stock until the fear for regional banks subsides.
