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The shares of PacWest Bank collapsed more than 50% in after-hours trading on Wednesday, May 3rd. The sudden drop started several hours after the end of the trading day after a report that the lender is looking into various “strategic options” including a sale emerged.

PacWest Plummets As Regional Bank Crisis Restarts

Tuesday, May 2nd, was a dramatic day for American regional banks as many of them experienced sharp drops in the price of their shares. The decline was largely caused by the sale of First Republic to JP Morgan which re-sparked concerns surrounding various mid-sized banks. The two most affected lenders on Tuesday were Western Alliance and PacWest Bank.

For the most part, Wednesday seemingly brought stability and the shares of PacWest declined just under 2% between the market’s opening and closing. Several hours into the after-hours, the situation drastically changed as it was alleged that the bank is looking into various strategic options, including a possible sale.

The news had a drastic effect on PacWest’s stock price as it quickly plummeted more than 50% and even approached 60% at one point. Western Alliance was also impacted by the report though its decline was less dramatic and amounted to just over 23%. The news of a possible sale of PacWest is still not entirely certain as the bank is allegedly yet to initiate a formal auction.

Fear and Confusion Surrounding US Regional Banks

The long string of rate hikes which saw its tenth increase in a row earlier on Wednesday has been causing some anxiety to economists and investors for months. The liquidation of Silvergate Bank in early March, although mostly caused by the effects of the bankruptcy of FTX, put the banking sector into the limelight.

The rapid closing of two other regional banks—Silicon Valley and Signature—and the subsequent emergency measures implemented by federal authorities served, in part, to deepen the worries about the phenomenon known as “zombie banks”. In the weeks following the closing of Signature Banks, the situation somewhat stabilized.

This, however, proved to be a lull in the crisis rather than its end as First Republic, a long-embattled bank, was driven into receivership and sold to JP Morgan earlier this week. The situation with the banking sector also was not helped by the seemingly ever-changing and even contradictory story told by various authorities.

For example, over the course of several weeks, President Biden both claimed that the sector is strong and warned that the crisis is not over yet. Additionally, FED’s Powell commented that the situation in the industry has noticeably improved only hours before the revelation that PacWest is allegedly seeking a buyer. 

Do you think PacWest will become the fifth bank to collapse in the ongoing crisis? Let us know in the comments below.

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