PacWest Bancorp
and other under-pressure regional bank stocks climbed early Monday as the sector extended a strong rally that kicked off Friday.
The Beverly Hills-based lender said late Friday it was cutting its dividend, citing economic uncertainty and volatility in the banking sector. CEO Paul Taylor described it as a “prudent step.”
In premarket trading, shares of PacWest (ticker: PACW) were up 34%.
Western Alliance
(WAL) jumped 17% and
Zions Bancorp
(ZION) rose more than 8%.
PacWest announced a quarterly cash dividend of 1 cent a share, down from 25 cents in the previous quarter, and added that the business remains “fundamentally sound.”
For RBC Capital Markets analyst Jon Arfstrom, PacWest’s high payout ratio was a headwind to achieving its capital targets. He maintains a Neutral rating on the stock.
“Given the extreme volatility in the stock recently, along with the low valuation relative to TBV (tangible book value), we believe this dividend reduction makes sense and can help the pace of capital building,” he said.
Monday’s market moves follow a strong rebound in regional bank stocks at the end of last week as attention turned to whether the sector’s sharp selloff has been overdone.
On Friday, PacWest stock surged more than 80% and Western Alliance jumped close to 50%—a sign that investors aremore confident in the health of banks.
Despite the rebound, the Pacwest shares remain down around 75% this year as of Friday’s close. Western Alliance is down 54%.
Also on Friday,
J.P. Morgan
analyst Steven Alexopoulos upgraded several regional banks—Western Alliance and Comerica to Overweight from Neutral—and Zion Bancorp to Overweight from Underweight.
“We believe a sell-off in regional banks has become a catalyst itself to cause further fear and selling pressure,” he said, noting that regional lenders have reported decent quarterly earnings and stabilizing deposit outflows.
It was a strong end to a volatile week, which began with the market digesting the sale of First Republic’s assets to JPMorgan Chase. The rescue failed to ease market jitters. The Federal Reserve also increased interest rates again Wednesday, putting the sector under even more strain.
PacWest attempted to reassure the public with a seemingly encouraging update on deposits, which have increased since the end of March, and the percentage of insured deposits it holds, which has climbed to 75%. Still, the stock plunged 50% on Thursday after the announcement.
Friday’s huge increase may be something of a delayed reaction to the positive update, or the beginning of a meaningful rebound for regional banks. Either way, expect more volatility.
Write to Callum Keown at [email protected]
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