PacWest Bancorp said it lost 20 per cent of its deposits this year, but has gained access to cash by adding $1.4bn through a loan facility from investment firm Apollo Atlas SP Partners.
PacWest’s reserves had fallen to $27.1bn on Monday from $33.9bn at the end of 2022, the Beverly Hills-based bank said in a statement on Wednesday. Nearly two-thirds of those deposits are covered by insurance programs supported by the US government and the bank has more money than uninsured deposits.
“As we look forward, we continue to believe in the strength of PacWest and are encouraged by the stability we’ve seen in deposits and liquidity over the past week,” chief executive Paul Taylor said in a statement.
The new funding arrangement will increase the bank’s ability to repay depositors who seek to withdraw money, but does not improve the overall financial position, which has been dragged down by losses in the bond portfolio.
PacWest is one of several West Coast regional banks under siege following the failure of Silicon Valley Bank earlier this month. Depositors in some midsized banks were hit with significant outflows this month after nearly $170bn in deposits in SVB were put at risk because they were not guaranteed by the US government.
Banking regulators finally agreed to backstop depositors at SVB and US Treasury secretary Janet Yellen has since said the guarantee offered to depositors at SVB failed to be replicated at other institutions.
PacWest has another headache. Most lending has been concentrated in commercial real estate, and analysts say a pandemic-driven drop in demand for office and retail space could make it difficult for developers to repay loans.
The volume of delinquent loans at the lender rose almost 60 per cent to $209 million in the fourth quarter, but bad loans still made up a smaller share of the $30bn loan book.
PacWest shares fell 17 percent on Wednesday, bringing their decline so far this month to more than 60 percent. The broader KBW Bank index shed 5 percent on the day.
The deal with Atlas, an asset-backed financing facility, is part of a move by the bank to expand access to funding as several US regional lenders grapple with SVB’s fallout.
PacWest drew on government lending programs, borrowing $3.7bn from the Federal Home Loan Bank and $10.5bn from the Federal Reserve’s discount window, seen as the last two lenders to US banks.
PacWest also said it is now offering higher rates to depositors, raising the interest rate it offers on deposits to more than 2 percent, from 1.71 percent at the end of last year.
PacWest said it had explored raising capital with potential investors, but the company “determined it would not be prudent to proceed with the transaction at this time”.
Taylor said PacWest was encouraged by the messaging from government officials, including Yellen, on Tuesday.
Despite the outflow of deposits, PacWest said it had also opened about 130 new accounts in the venture capital business since March 9. SVB had dominated lending to venture capital firms before its collapse.
Atlas SP is a new venture formed by Apollo earlier this year after it bought a majority stake in Credit Suisse’s securitization products business.