After three US banks have defaulted since last March, the alarm is once again sounding at Backwest Bancorp, a regional bank that was teetering on the heels of the collapse of 3 competing lenders in California, as it studies a range of strategic options, including selling, according to what I reported. Bloomberg” on sources, and “Al Arabiya.net” reviewed it.
The sources said the Beverly Hills-based bank was working with a financial advisor and was also considering spinning off its business or raising capital. While it is open for sale, the company has not started an official auction process.
“The bank did not experience extraordinary deposit inflows following the sale of First Republic Bank and many other negative news,” Baquist said in a statement on Wednesday. “Our cash flow remains strong and has exceeded uninsured deposits,” he added.
The bank’s shares fell after US trading hours on Wednesday after Bloomberg News reported that it was considering strategic options, including selling. A BaQuest statement narrowed the move slightly, with shares down as much as 48% in early US trading Thursday. Renewed investor anxiety about a sector rocked by bank failures and deposit outflows since early March sent index fund documents that track regional lenders to their lowest level since 2020.
“Recently, the company has been approached by several potential partners and investors – discussions are ongoing,” Baquist said. “The company will continue to evaluate all options to maximize shareholder value.”
The sale came just hours after Federal Reserve Chairman Jerome Powell said authorities were closer to containing the turmoil that has claimed the lives of 4 lenders this year. Powell said the government’s seizure of First Republic and its sale to JPMorgan was “an important step toward drawing a line at a time of great stress for regional lenders.”
Panic spread among investors, with shares of Western Alliance Bancorp, Comerica Inc and Zions Bancorp down more than 17% this week to Wednesday’s close.
The First Republic became the fourth US bank to collapse this year, after Silvergate Capital Corp., Silicon Valley Bank and Signature Bank.
It comes after a year of rising interest rates eroded the value of banks’ bond holdings and pushed banks’ unrealized losses to an estimated $1.84 trillion, as problems in commercial real estate added to the pain. These pressures add to the market’s focus on smaller banks, which usually have fewer resources to fend for themselves.
Backoist shares fell 60% in after-hours trading before losses pared to about $3.33 a share, compared to Wednesday’s closing price of $6.42 a share. While “Western Alliance Bancorp” sank by as much as 38%, while “Comerica Inc” and “Zions Bancorp” fell by more than 10% each.
The Western Alliance also said on Wednesday that it had not seen any unusual deposit inflows, and reaffirmed that its quarterly deposit guidance still points to an uptick on a quarterly basis.
Among those warning of further banking pressure are financial heavyweights, including billionaire hedge fund billionaire Bill Ackman and former Dallas Federal Reserve Bank President Robert Kaplan. Speaking ahead of Backoist’s statement, Ackman said he believes the entire US regional banking system is in jeopardy.
“Trust in a financial institution was built over decades and destroyed in days,” Ackman, the chief executive of Pershing Square, said on Twitter. “As each domino falls, the next weaker bank begins to wobble.”
Regional banking problems
Regional US banks were in turmoil after a run on deposits hit many lenders, eventually leading to the collapse of 3 California-based banks and one in New York. Stocks were volatile after rising interest rates drove down the value of bonds that regional lenders bought when interest rates were low, and an increase in customer withdrawals forced some to sell those assets at a loss.
Backwest, led by CEO Paul W. Taylor, has tried several times to reassure investors about its stability, with the bank saying on March 10 that it had taken steps to strengthen itself and then saying on March 22 that deposits had stabilized.
But he put aside efforts to raise capital at the time, explaining that it would not be wise under current circumstances. Instead, he raised $1.4 billion in a financing facility provided by Atlas SP Partners, augmenting its finances with cash from various federal programs.