Stock prices are an imperfect measure of a lender’s health, but an intensifying challenge for bankers and regulators is how to keep the turmoil in the stock market from spilling into lenders’ day-to-day businesses, potentially spooking depositors.
Resolving investors’ fears is tricky. With share prices beaten down and interest rates rising, any attempt to raise capital by selling stock would be costly and damaging to a bank’s existing investors. Selling a bank’s assets to raise funds, including loans and securities with low interest rates, would lock in losses that could otherwise be avoided.
Amid the renewed turmoil in regional banking stocks, First Horizon, a regional lender based in Memphis, Tenn., and TD Bank, one of Canada’s largest lenders, on Thursday ended their agreement to merge, citing uncertainty about regulatory approval. The deal was originally announced in early 2022 and had been mired in regulatory delays before the collapse of Silicon Valley Bank. TD will pay a $200 million breakup fee to First Horizon, whose stock fell 35 percent in early trading.
PacWest has been a particular worry for investors since the concerns about small banks emerged this year. Like the failed Silicon Valley Bank, PacWest had a large number of unsecured depositors and does a lot of business with the technology industry. The Federal Deposit Insurance Corporation insures up to $250,000 in deposits, and that has left banks with a large share of uninsured deposits vulnerable to runs if clients fear they won’t have access to their deposits and rush to pull their money out.
Days before it failed, for example, First Republic reported outflows of more than $100 billion in deposits over just a few weeks.
But PacWest has tried to address the worst of those fears. On Wednesday, it said that insurance covered 75 percent of its deposits, up from 71 percent at the end of March. The bank had access to cash and other funds worth nearly twice the amount of its remaining uninsured deposits.
PacWest said in March that it had raised $1.4 billion from an investment firm and about $15 billion from various federal programs, including those set up after the demise of Silicon Valley Bank and Signature Bank. At the time, PacWest also said it had considered selling a stake in itself, but decided that the depressed value for regional bank stocks meant that such a move “would not be prudent.”
Since then, its shares have fallen more than 60 percent
Bernhard Warner contributed reporting