PACW - PacWest Bancorp rated Hold in new coverage by Odeon Capital's Bove

2023-06-08 08:19:43 ET

Odeon Capital analyst Richard Bove on Thursday initiated coverage of PacWest Bancorp ( NASDAQ: PACW ) with a Hold rating, noting that the company's situation has stabilized but is still in a stressful position.

When PacWest ( PACW ) lost $6.7B, or 19.8%, of its deposits during the bank crisis, it acted quickly by boosting rates on certificates of deposits and buying brokered deposits from big banks, Bove explained. In addition, it sold 74 real estate construction loans , closed its premium finance business, reduced multifamily lending operations and health care lending, and sold its CIVIC business.

Bove pointed out, though, that the deposits that PACW lost cost the bank nothing, while the acquired deposits are costing 5% or more for seven- to 18-month periods, according to his estimates.

Also the company has said it's reviewing strategic options , suggesting it may be looking for a buyer. While management may succeed in that effort, he suspects that could result in a "buy-under."

"In sum this is a high-risk situation, so I am not recommending purchase of this bank," Bove wrote in a note to clients. "However, fears of the company disappearing may have dissipated so that speculators might wish to continue to hold the stock."

Overall, the analyst is impressed with PacWest's quick reaction to the March 2023 bank stresses. Those have "effectively put the bank on the right track," he said. "The unknowns is how these actions have impacted net interest margin and its future revenue streams."

Still, PacWest ( PACW ) stock has gained 3.6% in Thursday premarket trading.

Bove's Hold rating is more bullish than the SA Quant rating of Strong Sell and is more bearish than the average Wall Street rating of Buy.

More on PacWest and the Bank Crisis:

• Kennedy-Wilson signs on Fairfax Financial to invest in 63 PacWest loans
• PacWest Bancorp Should Make It
• PacWest stock resumed drop after pledging more collateral to discount window (May 11)
• PacWest led regional stock bank stock higher after dividend cut, bank deposit trends (May 8)
• In March, PacWest stock fell after deposits dropped 20% YTD

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