June 1, 2023

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

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

Morgan Lieberman Bloomberg | Getty Images

Backwest Bankcorp led a rebound in regional banks again on Monday, after the ailing lender cut its dividend to build capital amid the banking crisis.

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

Other regional banks also rebounded for a second day. The SPDR S&P Regional Banking Index (KRE) rose 2.8% in the primary market, after rising 6.3% on Friday. Western Alliance stock jumped 8% in the preliminary market Monday after rising 49% in the previous session, and Zions Bancorp rose 4% Monday.

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

Concerns about regional banks persist after regulators acquired First Republic last week, leading to the third failure of a US bank since March. The rapid increase in interest rates affected banks with long-term bond assets, causing deposits to flee. Institutions with a high proportion of uninsured deposits found themselves particularly vulnerable because clients feared losing their savings on bank trades.

see chart…

ETF regional banking 1 day

Backwest said last Wednesday that it is examining “all options,” confirming that it is in talks with several potential partners and investors. The California-based bank said it had not seen “extraordinary deposit inflows” after the collapse of the First Republic.

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PacWest shares are down more than 40% in May and 75% in the year through Friday. The SPDR’s regional banking ETF is down 10% in May and 35% in the year through Friday.