The banking storm that is plaguing the United States is once again shaking the sector hard. Investors are on the hunt for new victims and have targeted PacWest Bancorp and Western Alliance, which investors point to as possible next victims of the crisis. Both have come to sink 60% this Thursday and infect other entities. The volatility is extreme and the fluctuations are violent. The banking crisis has also brought about the purchase of the First Horizon bank by the Canadian giant Toronto-Dominion Bank (TD Bank), an operation of more than 13,000 million dollars. First Horizon shares collapsed on the stock market almost 40% this Thursday.
PacWest Bancorp is a California bank, like the failed Silicon Valley Bank and First Republic Bank. The Beverly Hills-based entity, which already fell by nearly 30% on the stock market this Tuesday, maintained the rate in the Wednesday session, but after normal market hours it collapsed following information from the financial agency Bloomberg that noted that the entity has been “weighing a number of strategic options.” Although that shouldn’t necessarily be a negative, it’s the same as First Republic Bank was doing before it was taken over, cleaned up by the deposit guarantee fund, and sold to JPMorgan.
Among this series of strategic options is the sale of the entity, whose market capitalization was somewhat below 800 million dollars (about 720 million euros) at the close of the session on Wednesday. PacWest has about 70 branches, mostly in California, and about $44 billion in assets, according to its website. A direct placement is complicated because there are not many interested potential buyers in the entire bank. A buyer would have to realize large latent losses on the asset portfolio. Another possibility is slicing, but it would also cause latent losses to emerge, predictably.
The bank has confirmed in a communication to the Securities and Exchange Commission (the SEC) that it is studying those options. As previously indicated, the entity has studied strategic asset sales, including a loan portfolio of 2.7 billion dollars, the sale of which would improve its capital levels. “In addition, in accordance with usual practice, the entity and its board of directors continually review strategic options. Several partners and potential investors have recently contacted the entity. The entity will continue to evaluate all options to maximize value for shareholders”, it has communicated.
The bank assures that it has not experienced unusual deposit outflows following the intervention and sale of First Republic Bank and the publication of other recent news and that it has sufficient liquidity.
PacWest Bancorp has infected other entities, which also sank on Wednesday afternoon in the negotiations after the official closing of the session. Western Alliance, a regional banking group based in Phoenix (Arizona) that had a capitalization of 3,200 million dollars at the close of the session on Wednesday, opened this Thursday with a fall of 20%, but the losses have accelerated when publishing the Financial Times, which is also negotiating its sale. Stocks drop more than 60%.
Zions Bancorp, a bank with a value of 3,600 million dollars in the Stock Market, falls 15% before this new onslaught of the financial storm. Metropolitan Bank, a small bank with a market capitalization of around $200 million, is also down another 15%.
Rupture at First Horizon
In the case of the First Horizon and TD Bank transaction, the two parties present the break as mutually agreed. TD Bank will pay compensation of 200 million dollars (about 180 million euros) for breaking an operation of 13,000 million dollars. First Horizon shares sink almost 40% on the stock market after the market opens. Its collapse joins that of other regional banks, especially PacWest Bancorp and Western Alliance, which investors point to as possible next victims of the crisis. Both sink 60% this Thursday.
The First Horizon purchase operation was announced in February 2022, in a totally different market context. According to the joint statement issued this Thursday by both entities, “TD has informed First Horizon that it does not have a timetable for obtaining regulatory approvals for reasons unrelated to First Horizon.” “Due to uncertainty as to when and if these regulatory approvals will be obtained, the parties have mutually agreed to terminate the merger agreement,” they add.
The $200 million penalty clause payment is in addition to a $25 million fee reimbursement to First Horizon under the merger agreement. TD Bank will suffer a loss on the series G shares purchased for a conversion price of $25 per share, the offer price. With the fall of Silicon Valley Bank and Signature Bank, to which First Republic has been added in the last week, investors were already wary that the Canadian group was going to close the purchase of the entity based in Memphis (Tennessee). .
First Horizon shares had been trading near the $25 offer since the deal was signed, but with the banking storm they had fallen to $15. Now, with the breakdown of the agreement, they plummet again by 40%, to 9 dollars, in the operations prior to the opening of the session. With this, they are trading 64% below the price at which the operation was intended to be closed. First Horizon had a market capitalization of 8,000 million dollars this Wednesday, far from the more than 13,000 million of the agreement. With today’s collapse, it can stay at less than 5,000 million.
“While today’s announcement is unfortunate and unexpected, First Horizon will continue on its path of growth by operating from a position of strength and stability,” Bryan Jordan, First Horizon’s president and CEO, said in the statement. “Our strong capital position, credit quality discipline, expense control measures, and a well-diversified and stable funding mix have enabled our business to weather difficult dynamics in the banking industry and remain focused on executing our plan. customer-focused growth”, he added.
The challenge for the Tennessee entity is that the stock market crash is only a valuation adjustment to the new reality of the US regional bank, but does not create a vicious circle that puts the entity at risk if the collapse in the stock market is associated with weakness and that causes leakage of deposits.
For his part, Bharat Masrani, Chairman and CEO of TD Bank Group, said in the joint note: “This decision brings clarity to our colleagues and shareholders. Although we are disappointed with the result, we continue to build a strong franchise and grow in the United States, serving more than 10 million customers.”
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