Shares of PacWest Bancorp (PACW) dropped by 2.44% because the issue of the debt ceiling is causing more concern than the sale of their property lending unit.
PacWest Bancorp, a big bank in the U.S., saw its shares drop by more than 2% on Wednesday. This happened even though investors were hopeful about selling its property lending unit and getting rid of real estate loans. The reason for the decrease in share prices is the ongoing problem with the U.S. debt ceiling.
Negotiations to raise the debt limit have proven to be elusive, leading to growing concerns among investors. President Joe Biden and House Speaker Kevin McCarthy, who represent the Democrats and Republicans, met again at the White House to try and find a solution to the problem.
This stalemate has had a ripple effect on global stock markets, with investors flocking toward safe-haven assets. Arthur Hogan, the chief market strategist at B.Riley Wealth, stated in an investor note, “The standoff is weighing on global stocks as investors seek haven assets. Our base case is that an agreement will be reached in the eleventh hour.”
PacWest shares were trading at $7.20, aligning with the broader market and other regional banking stocks. Western Alliance Bancorporation (NYSE: WAL) experienced a loss of 2.3%, while Comerica Incorporated (NYSE: CMA) fell by 2%, and Valley National Bancorp (NASDAQ: VLY) also saw a decline. The KBW Regional Banking Index slipped by 1.8%.
Just a day before, PacWest had finalized an undisclosed deal to sell its property lending unit to Roc360, a real estate financing firm. This move followed the previous sale of real estate construction loans worth $2.6 billion at a discounted price.
Investors are worried about regional lenders being involved in commercial real estate, especially office buildings. This concern arises because borrowers are having trouble paying their debts due to higher interest rates and falling prices of assets. As a result, investors continue to feel uneasy about the situation.
Although PacWest’s stock has experienced a decline of approximately 70% this year, it has also witnessed an impressive recovery, nearly tripling in value from its lowest point. This upward trajectory is mirrored by other regional lenders, bolstering confidence that the banking crisis is nearing its end and that many lenders remain fundamentally sound.
Unfortunately for short-sellers, this rebound has resulted in substantial losses. Data from analytics firm Ortex reveals that short-sellers betting against PacWest, Western Alliance Bancorporation, Fifth Third Bancorp (NASDAQ: FITB), and Comerica have collectively lost $98.5 million.
In a separate development, Citigroup Inc. (NYSE: C) faced a setback as its shares fell by nearly 2% after the bank announced the cancellation of a $7-billion sale of its Mexican consumer unit. Instead, the bank intends to list the unit, taking a different approach to its strategic plans.
