To The Moon

Foreseeing the Unforeseen in $First Republic Bank(FRC)$ 's Bankruptcy

In the wake of successfully forecasting First Republic Bank's bankruptcy, I now turn my attention to other financial institutions that may follow suit. One such institution, $PacWest(PACW)$ , raises concerns as it shows signs of further severe damage. The U.S. government's efforts have been commendable in halting a potential banking sector contagion, but its lack of support for shareholders in this crisis does not bode well for the industry as a whole. Consequently, I remain bearish on PACW stock.

Troubling Financials: PACW's Q1 2023 Statement and Losses

PacWest Bancorp's financial statement for the first quarter of 2023 raises concerns, with a net loss of $1.21 billion available to common stockholders. While the bank recorded an adjusted earnings of $89.4 million, goodwill impairment of $1.38 billion due to stock price decline and a severance and contract termination expense of $8.5 million have impacted the financials negatively. This paints a bleak picture for the bank, and with PACW shares having fallen 54% since January, it's clear that the hemorrhaging needs to stop to prevent catastrophic damage.

The FDIC's Limited Protection: A Tipping Point for Bank Runs

The Federal Deposit Insurance Corporation's (FDIC) limited protection for depositors ($250,000 per account) has been a tipping point for bank runs, which led to the collapse of SVB Financial Group and Signature Bank. The U.S. government has provided support to depositors, but the Treasury, Federal Reserve, and FDIC's joint statement confirmed that impacted shareholders and certain unsecured debtholders will not be protected. This has led to investors abandoning ship with PACW stock, as the risk exposure is too high.

A Closer Look: PacWest Bancorp's Financial Stability in Question

PacWest Bancorp's financial stability has been called into question, with asset growth of 15.5% a year for the last three years outpacing revenue growth of 5.7% over the same period. This suggests declining efficiency for the bank. The $348 million debt issuance by PacWest over the past three years, which was once considered unproblematic, has become a concern in light of the banking crisis and a high interest-rate environment.

Wall Street's Verdict: PACW Stock Rated as "Hold"

Wall Street's consensus rating for PACW stock is "Hold," with one Buy, four Holds, and zero Sell ratings. The average price target is $29.00, implying 182.1% upside potential. However, given the precarious position of the bank and the possibility of further failures, investors face an all-or-nothing proposition. In such a situation, it's arguably better for most market participants to cut their losses and live to see another day.

Conclusion: No Compelling Reason to Hold onto PACW Stock

In conclusion, the outlook for PacWest Bancorp is grim, with no compelling reason to hold onto its shares. The financial instability, coupled with the U.S. government's lack of support for shareholders, and the ever-looming risk of bankruptcy, make PACW stock a highly unattractive investment. It is crucial for investors to tread carefully and consider the potential consequences before taking any action

My Short Position:

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Disclaimer: The views expressed in this article represent the personal views of myself (the author)and do not constitute investment advice for anyone. The author does not guarantee the accuracy, completeness and timeliness of the information in the article, nor does it assume responsibility for any losses arising from the use of, or reliance on, the information in the article. The author assumes no fiduciary responsibility or liability for any consequences

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