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Regional banks are financial institutions that operate in specific geographic areas of the country and often provide a variety of banking services such as deposit accounts, loans, and other financial goods.
PacWest Bancorp (NASDAQ: PACW), an American regional bank with headquarters in Beverly Hills, California has reduced its shareholder’s dividends amid the current banking crisis. This bold gesture has helped ticked the sheer recovery in the shares of the regional bank.
As reported by CNBC, the business announced a dividend drop from 25 cents in the prior quarter to 1 cent per share. Following the announcement, PacWest stock rose 39% in premarket trade Monday, adding to a nearly 82% gain on Friday. The stock’s growth has been tapered down and is now up 20% to $6.92.
While dividend cuts might indicate to investors that a firm is having financial troubles or that its profitability is deteriorating, PacWest CEO Paul Taylor told investors that the bank’s operations are “fundamentally sound”.
Additionally, Taylor stated that the Corporation believed that cutting the dividend is a reasonable measure to accelerate the company’s capital-building efforts amid current economic uncertainty and recent volatility in the banking sector.
Interestingly, other regional banks recovered for a second day as well. Notably, Western Alliance Bancorporation (NYSE: WAL) surged 10% in Pre-market trading on Monday after rising 49% in the prior trading session. Zions Bancorporation (NASDAQ: ZION) jumped by 6%. Furthermore, the SPDR S&P Regional Banking ETF (KRE) advanced 2.3% in premarket trading, following a 6.3% gain on Friday.
It is worth noting that the statement came just days after PacWest shares had dropped by 50% due to investor skepticism following the failure of numerous US regional banks. At the time, the CEO highlighted that management was taking rapid steps to maximize liquidity, including the investigation of strategic asset sales.
Regional banks are financial institutions that operate in specific geographic areas of the country and often provide a variety of banking services such as deposit accounts, loans, and other financial goods. Over the past few weeks, many regional banks have met their Waterloo including Silicon Valley Bank and First Republic Bank (OTCMKTS: FRCB).
Impact of Banks’ Collapse on Regional Banks
When any major bank fails, it can have far-reaching consequences for the rest of the financial system, including the operational viability of regional banks. However, the effect on regional banks will vary depending on a number of variables, including the size and interconnectedness of the failing bank, the extent of their exposure to it, and the health of the overall economy.
Remarkably, PacWest shares are down more than 40% in May and 75% year to date as of Friday. This comes as economists predict that the 2023 banking crisis will be significantly worse than the 2008 debacle. Similarly, the shares of SPDR Regional Banking ETF are down 10% in May and 35% year to date as of Friday.
Notably, several regional US banks including Signature and Silvergate Bank have already failed. Also, the failure of Credit Suisse earlier this year has had an impact on the global scene as well.
Ultimately, it is clear that a constricting economy can have serious consequences for regional banks, and vigilant monitoring of the broader financial system is required to limit these risks, a responsibility being assumed by the Federal Reserve with its latest 25 basis point interest rate hike.