PacWest secures $1.4bn of cash from Atlas after deposits fall 20%

PacWest Bancorp said it lost 20 per cent of its deposits this year but that it had shored up its access to cash by raising $1.4bn via a lending facility from Apollo-backed investment firm Atlas SP Partners.

PacWest’s deposits had fallen to $27.1bn as of Monday from $33.9bn at the end of 2022, the Beverly Hills-based bank said in a statement on Wednesday. Nearly two-thirds of its deposits were covered by a US government-backed insurance programme and the bank had more cash on hand than it did uninsured deposits.

“As we look ahead, we have continued confidence in the strength of PacWest and are encouraged by the stability we have seen in our deposits and liquidity over the past week,” chief executive Paul Taylor said in a statement.

The new financing arrangement will add to the bank’s ability to repay depositors who seek to withdraw their money, but does not improve its overall financial position, which has been dragged down by losses on its portfolio of bonds.

PacWest is one of a handful of West Coast regional banks that came under siege after the failure of Silicon Valley Bank earlier this month. Depositors in several midsized banks were hit with significant outflows this month after nearly $170bn in deposits at SVB were put at risk because they were not guaranteed by the US government.

Banking regulators ultimately agreed to backstop depositors at SVB and US Treasury secretary Janet Yellen has since said guarantees offered to depositors in the failed SVB could be replicated at other institutions.

PacWest has another headache. Much of its lending has been concentrated in commercial real estate, and analysts argue that the pandemic-driven drop in demand for office and retail space may make it harder for developers to repay their loans.

The volume of delinquent loans at the lender jumped nearly 60 per cent to $209mn in the fourth quarter, but bad loans still account for a relatively smaller portion of its $30bn loan book.

PacWest shares fell 17 per cent on Wednesday, taking its decline so far this month to more than 60 per cent. The broader KBW Bank index shed 5 per cent on the day.

The deal with Atlas, an asset-backed financing facility, is part of a raft of steps the bank said it had taken to bolster its access to funding as several US regional lenders grapple with the fallout of SVB’s collapse.

PacWest has drawn on government lending programmes, borrowing $3.7bn from the Federal Home Loan Bank and $10.5bn from the Federal Reserve’s discount window, seen as the two lenders of last resort to US banks.

PacWest also said it was now offering depositors higher rates, raising the interest rates offered on deposits to just over 2 per cent, from 1.71 per cent at the end of last year.

PacWest said it had explored a capital raise with potential investors, but the company “determined it would not be prudent to move forward with a transaction at this time”.

Taylor said PacWest was encouraged by the messaging from government officials, including that by Yellen on Tuesday.

Despite the deposit outflows, PacWest said it had also opened about 130 new accounts in its venture capital business since March 9. SVB had dominated lending to venture capital firms before its collapse.

Atlas SP is the new venture formed by Apollo earlier this year after it purchased a majority stake in Credit Suisse’s securitised products business.