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

A Pacific Western Bank branch in Encino, California, on Saturday, April 22, 2023.
Morgan Lieberman | Bloomberg | Getty Images

PacWest Bankcorp led a relief rally in regional banks again on Monday, after the struggling lender slashed dividend to build capital amid the banking crisis.

Shares of PacWest soared 38% in premarket trading Monday, adding to a near 82% pop on Friday. The company on late Friday evening announce a dividend cut 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 businesses remains “fundamentally sound.”

Other regional banks also rebounded for a second day. The SPDR S&P Regional Banking ETF (KRE) rose by 2.8% in premarket, following a 6.3% rally Friday. Western Alliance jumped 8% in premarket Monday after gaining 49% in the previous session, and Zions Bancorp rose 4% Monday.

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

Worries about regional banks lingered after regulators took possession of First Republic last week, resulting in the third failure of an American bank since March. A rapid increase in interest rates has weighed on banks with long-term bond assets, causing a deposit flight. Institutions with a high proportion of uninsured deposits found themselves particularly vulnerable because customers feared losing savings in a bank run.

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PacWest said last Wednesday it was exploring “all options,” confirming it was in talks with several possible partners and investors. The California-based bank said it had not experienced “out-of-the-ordinary deposit flows” after First Republic’s collapse.

Shares of PacWest are down more than 40% in May and 75% for the year through Friday. The SPDR Regional Banking ETF is off by 10% in May and 35% for the year through Friday.