Regional Bank Stocks Rise After PacWest Dividend Cut

Regional Bank Stocks – On Monday, the shares of PacWest Bancorp and other regional banks that are under pressure rose, as the sector continued its strong surge that began on Friday.

On Friday, the Beverly Hills-headquartered bank announced that it would reduce its dividend due to the financial uncertainty and volatility in the banking industry. The CEO, Paul Taylor, characterized it as a “cautious move.”

Before regular trading began, the stock prices of PacWest had risen by 34% in premarket trading. Western Alliance also experienced a significant increase, jumping up by 17%, while Zions Bancorp saw a rise of more than 8%.

PacWest declared a cash dividend of 1 cent per share for the quarter, which is a significant decrease from the 25 cents paid in the previous quarter. However, the company emphasized that its business remains “sound at its core.”

Get 2 Years of The Wall Street Journal Print Subscription with daily delivery for $480

According to Jon Arfstrom, an analyst at RBC Capital Markets, PacWest’s high ratio of dividend payouts was an obstacle to meeting its capital objectives. Arfstrom has a Neutral rating on the stock.

“Due to the recent highly unstable condition of the stock, along with the low valuation when compared to tangible book value (TBV), we think that reducing the dividend is a sensible step to facilitate the speed of capital accumulation,” he stated.

The recent surge in regional bank stocks toward the end of last week prompted attention to whether the sector’s significant decline has been exaggerated. This led to market movements on Monday.

Last Friday, there was a significant surge in PacWest’s stock by over 80% and Western Alliance’s stock by nearly 50%, indicating that investors have greater confidence in the banking sector’s stability.

Subscribe today and get 52 weeks of The WSJ Print Edition

Notwithstanding the recovery, as of Friday’s close, PacWest stocks are still approximately 75% lower than at the beginning of the year. Western Alliance is also down by 54%.

Furthermore, last Friday, J.P. Morgan analyst Steven Alexopoulos boosted the rating of various regional banks, including Western Alliance and Comerica, from Neutral to Overweight. Additionally, Zion Bancorp’s rating was upgraded from Underweight to Overweight.

He noted that despite decent quarterly earnings and stabilizing deposit outflows from regional lenders, a sell-off in regional banks has sparked further fear and selling pressure.

The week ended on a positive note after a period of market volatility. The week began with the news of JPMorgan Chase’s acquisition of First Republic’s assets, but this failed to calm market concerns. On Wednesday, the Federal Reserve raised interest rates, which added to the pressure on the sector.

Despite PacWest’s attempt to reassure the public by providing an encouraging update on their deposits, which have increased since March, and the percentage of insured deposits it holds, which has gone up to 75%, the stock dropped by 50% on Thursday after the announcement.

The significant surge in regional bank stocks on Friday could be considered a delayed response to the positive deposit update or the start of a substantial recovery. However, there may still be fluctuations in the market.