As wary depositors started moving their funds from smaller regional banks to larger too-big-to-fail nationwide banks in a bid to safeguard their cash, stock market investors started making bets on the next dominoes to fall.
It was not too long before attention zoomed in on banks like Pacific Western Bank (PacWest) and Western Alliance (WAL) apparently due to their larger reliance on uninsured deposits and exposure to the venture capital industry in the form of deposits and loans.
The name of PacWest has been splattered across headlines as one of the banks facing a strain on its deposits ever since the US banking sector was shaken by the collapse of Silicon Valley Bank (SVB) on Mar 10, 2023, and Signature Bank on Mar 12, 2023.
It’s pertinent to highlight that First Citizens Bank bought $72 billion SVB loans at a $26.5 billion discount (or 23% haircut). PacWest stock tumbled as a result.
Read more: First Citizens Bank acquired $72 bn in assets from collapsed SVB
PacWest had total assets of $41 billion as of Dec 2022.
On the other hand, at one point in March, WAL shares found themselves up 29% on a year-to-date basis. However, just a few weeks later, they’re down 45%, a staggering loss of market value.
However, the real problem is that Western Alliance tacked on considerable debt. As of the fourth quarter of 2022, the company carries $6.5 billion of long-term debt. In the year-ago quarter, it held only $1.67 billion. Heading into a period of possibly even more restrictive monetary policy, such an increase in debt is worrisome.
The bank said it had $61.5 billion in deposits as of March 9 and $2.5 billion in cash held on its balance sheet.
Since the end of 2008, the Federal Deposit Insurance Corp. (FDIC) noted that 513 banks collapsed.
Elevated withdrawals
On March 17, PacWest said it had witnessed ‘elevated’ withdrawals following the collapses of SVB and Signature Bank.
The Los Angeles-based bank gave no details on the sum of the withdrawals but said they were mainly from its venture banking business line.
Pacific Western Bank said that as of March 16, insured deposits accounted for over 62% of total deposits, while insured venture-specific deposits made up more than 77% of total venture deposits.
Meanwhile, there is no information available on the value of withdrawals Western Alliance suffered as a result of the latest banking sector collapse.
However, Western Alliance management released a filing on March 10 to shore up confidence, but the stock is speculative and the bank may still be at risk.
The FDIC only insures deposits up to $250,000, and that realization has led to a run on the banks as depositors seek to get money out.
On the other hand, since the day regulators seized SVB, it was public knowledge that panicked customers withdrew $42 billion from the bank on March 9 on concerns that uninsured deposits were at risk.
The total withdrawal figure of $142 billion represents a staggering 81% of SVB’s $175 billion in deposits as of year-end 2022.
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