The Beverly Hills-based PacWest Bank is in trouble after shares plummeted by 50 percent in after-hours trading on Wednesday. It has emerged that the bank has requested assistance for either a sale or an injection of fresh capital, and a top financier has warned of potential dominoes falling.
PacWest Bank is considered vulnerable due to its similarity to Silicon Valley Bank, which collapsed on March 10th. Both banks are based in California and have strong ties to the technology industry. Additionally, they both have large amounts of uninsured deposits, exceeding the federally protected limit of $250,000.
PacWest Bank is highly exposed to commercial real estate fluctuations. At the end of December, analysis by Barrons revealed that commercial real estate loans amounted to more than 375 percent of the bank's capital - significantly above the federal guideline's 300 percent limit. Furthermore, the bank's most volatile real estate loans, for land and construction, accounted for almost 140 percent of its capital.
The bank's recent request for help, as well as its significant exposure to commercial real estate, has caused concern on Wall Street. PacWest Bank's struggles could have significant consequences for the banking industry, particularly in California.
Investors are keeping a close eye on the situation, waiting to see what will happen next. The bank's fate remains uncertain, but it is clear that PacWest's woes are causing jitters throughout the financial industry.
