PacWest shares lost half their value on Thursday

At the end of last year, this gap between the carrying value and fair value of its loans came to $1.78 billion.

WSJ 4 May 2023

PacWest Bancorp led a rebound across US regional banking stocks after a bruising week of losses, joining in a broader rally across US stocks futures ahead of jobs data due later in the day.

PacWest (PACW) Leads Regional Bank Stock Rebound After Bruising Rout - Bloomberg

Bank Stocks Bounce

This is not like the GFC 

in the sense that it doesn’t hinge on distrust in the valuations of assets on banks’ books. It isn’t that investors fear that many of their loans are toxic. Rather, the issue now concerns profits. 

With interest rates where they are, the logic is that banks can only hold on to their deposits, a vital source of cheap funding, by offering rates to customers that obliterate their profits. 

This doesn’t directly threaten a bank, in the way that the bad loans did in 2008. But if a bank looks less likely to make profits, that will mean a lower share price, which in turn will make it harder for it to raise equity funding, and not just debt finance. 

Yields have fallen again this week on the belief that the bank crisis will compel the Fed to ease monetary policy. Possibly even more important, the most obvious solution could involve a big fiscal outlay. 

Insuring all deposits, advocated by many as the measure that could end the crisis, would be mighty costly, even on an interim basis. To do it on a permanent basis would require legislation, which in turn would require America’s polarized politicians to agree on something. 

John Authers Bloomberg 5 maj 2023


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