PacWest sinks 11% as the California bank borrows cash following a 20% drop in deposits

Regional banks like PacWest have been hit with deposit outflows. Photo Illustration by Pavlo Gonchar/SOPA Images/LightRocket via Getty Images

• PacWest shares fell more than 11% during Wednesday's session following a financial update. 
• The lender said deposits have fallen 20% since the end of last year. Venture banking deposits have declined. 
• Regional banks have been shaken by deposit outflows since SVB's collapse this month. 

PacWest shares tumbled more than 10% on Wednesday after the bank's update showed deposits have dropped by a fifth, leading the lender to obtain credit lines during an unsettling period of outflows from regional banks since the fall of Silicon Valley Bank this month. 

The stock lost as much as 13% to hit an intraday low of $10.68. The decline was pared slightly after the Federal Reserve released its March policy statement, signaling it's nearing the end of its rate-tightening cycle. 

An update from the company's Pacific Western Bank subsidiary added to the broader picture of stress on small and mid-sized banks as the Federal Reserve tightens monetary policy to battle inflation. 

The Los Angeles-based lender said deposits fell 20% to $27.1 billion as of March 20 from $33.9 billion at the end of 2022. It had logged deposits of $33.2 billion as of March 9 in a previous regulatory filing.

There was a fall in venture banking deposits, accounting for 24% of the bank's total deposits compared with 33% at the end of last year. 

Venture capital business was vital for SVB, which centered on tech startups. SVB imploded earlier this month after a run on deposits was kicked off by news of its massive loss from the sale of bond portfolio, whose value was hammered by climbing interest rates. 

Since the failure and seizure of SVB, people have moved $500 billion from smaller lenders to money market funds and big banks, JPMorgan said Wednesday. Pressure points include higher interest rates and trillions in uninsured deposits, it said. 

PacWest said more than 65% of its deposit base was under the FDIC's $250,000 insurance coverage limit and that roughly $600 million of deposits were backed by tradeable securities.

The bank said it's "proactively taken steps to bolster its liquidity," including borrowing $10.5 billion from the Federal Reserve's discount window and $2.1 billion from the Fed's emergency lending program set up after the seizure of SVB and another lender, Signature Bank. 

PacWest also landed a $1.4 billion in cash from investment firm ATLAS SP Partners through a senior asset-backed financing facility. 

The lender said it has "solid liquidity" and that deposit balances have stabilized. Available cash of more than $11.4 billions of March 20 exceeded total uninsured deposits of $9.5 billion. 

PacWest had explored raising capital with potential investors but decided against that because "depressed market prices for regional bank stocks," and of market volatility.  

"I am proud of the efforts the entire PacWest team has taken in these challenging times to enhance our liquidity and preserve franchise value," Paul Taylor, Pacific Western Bank's CEO, said in the update.

PacWest shares this year have plunged by more than 50% so far this year.