PacWest nearing collapse comes hard on the heels of the First Republic crash

PacWest nearing collapse comes hard on the heels of the First Republic crash

The bank crisis is not drawing to a close anytime soon -- what's next for First Republic -- its customers, PacWest, and bank stocks at large?

by SARA KHAIRI

2023 has so far emerged as the biggest year for bank failures by assets in US history, followed by another rough couple of weeks (yet again). 

First Republic Bank lost more than half of its deposits worth $100 billion, as shares dropped 50% last to last Tuesday. The bank took a hit as customers were a bundle of nerves regarding the safety of their funds in the wake of Silicon Valley Bank and Signature Bank failures last month.

As the lender’s situation has gone downhill, the Federal Deposit Insurance Corporation (FDIC) approached other major public firms last to last Thursday, to lend a hand in getting the bank out of a tight spot.

The FDIC offered each bank a proposed price and an estimated cost to the agency’s deposit insurance fund. The regulator planned on seizing First Republic, in case no other bank proposed a deal by Sunday, before the markets opened on the previous Monday.

On Monday, JPMorgan confirmed that it acquired a majority of First Republic's assets -- about $92 billion in deposits, which includes the $30 billion that it and other large banks put into First Republic last month. Additionally, it's getting $173 billion in loans and $30 billion in securities as well.

"Our government invited us and others to step up, and we did," said Jamie Dimon, Chairman and CEO of JPMorgan Chase. "Our financial strength, capabilities, and business model allowed us to develop a bid to execute the transaction in a way to minimize costs to the Deposit Insurance Fund."

Shares of JPMorgan rose 3.3% at midday on the previous Monday, after announcing its acquisition plan.

However, some critics are discontented with JPMorgan's decision, concerned that it would make the firm exceedingly large, which could sour things in the future for the bank itself.

First Republic customers’ deposits will continue to be FDIC-insured. Existing customers can access their funds right away -- and will continue having the same banking services that they had before the bank was taken over. Borrowers need to continue making payments regardless, according to their loan agreement T&C.

“Deposits will continue to be insured by the FDIC, and customers do not need to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits,” the FDIC said.

Wall Street analysts foresee cloudy skies ahead for First Republic as its shares were down 97% so far this year as of last to last Friday’s close.

Other bank stocks dipped Tuesday shortly after this collapse -- uninsured deposits and commercial banks such as Western Alliance Bank, PacWest Bancorp, Comerica, and Zions Bank felt the pinch the most. Shares of Western Alliance dropped 19% in midday trading and Pacific Western Bank fell 26% Tuesday, with trading of both stocks halted briefly due to high volatility.

Trading in PacWest shares was suspended after its value fell sharply by 42%, which further dipped as much as 60% on Wednesday. On Thursday, the commercial lender disclosed that it is weighing a range of potential strategic options, including a possible sale.

PacWest stock is down by 72% this year through Wednesday’s close.

This brings into question: is PacWest the next domino to fall amid a flurry of bank failures?

Market recap

Fintech stocks were under pressure throughout the week as a consequence of the ongoing banking crisis

MoneyLion (ML) - up 34% to $12.05 per share

• MoneyLion stock has gained 34% in a week.
• The company is expecting a positive Adjusted EBITDA ahead of its upcoming Q1 2023 financial results.

LendingTree (TREE) - down 23% to $17.46 per share

• LendingTree reported its Q1 2023 earnings results on Wednesday.
• Total revenues were down 29% y-o-y to $200.5 million in the first quarter. The revenue got hit by a decline in the home, consumer, and insurance segments' revenues -- missing analysts' estimates.

Editor's picks

Tweet of the week

Just look at the charts

This week's reads

Block share price charges higher on strong Q1 result and guidance

THE MOTLEY FOOL

In morning trade Friday, Block’s shares were up 1.5% to $91.40, after reporting its first-quarter results. Here’s how it performed in Q1'23 compared to the quarter-last year: Gross payment volume of $51.1 billion, Gross profit up 32% to $1.71 billion, Adjusted operating income of $51 million (up from $42 million loss), April gross profit up 24%. The increase in gross profit was driven by a 49% increase in Cash App gross profit to $931 million and a 16% lift in Square gross profit to $770 million.

Regional bank sell-off ensnares more fintech business partners

PITCHBOOK

The regional bank sell-off intensified Thursday as share prices for Pacific Western Bank and Western Alliance fell sharply. Tennessee-based bank First Horizon was also hit after a proposed merger with TD Bank was called off. For fintech startups that partner with regional banks, the day's events sent yet another shockwave through the industry.

Morgan Stanley plans to lay off 3,000 more workers amid downturn

NEW YORK POST

Morgan Stanley is reportedly planning to lay off an additional 3,000 employees, or 3.6% of its workforce, in the second quarter of this year. The second round of job cuts undertaken by the Wall Street investment bank in the last six months is on account of slow dealmaking and a tough economic environment.

Block, Robinhood, and Coinbase lawyers among fintech’s top paid

BLOOMBERG LAW

Robinhood, Coinbase, and Block made their legal chiefs among some of the highest-paid in the financial services industry last year as the companies cope with an array of legal and regulatory matters.

Robinhood’s chief legal, compliance, and corporate affairs officer Daniel Gallagher Jr., received nearly $15.1 million in total compensation last year. Coinbase’s chief legal officer and corporate secretary Paul Grewal received almost $7.5 million in total compensation in 2022. Sivan Whiteley, corporate secretary at Block, had a pay package valued at $8.3 million ahead of her departure this year.