What happened

PacWest Bancorp (PACW) saw its stock price fall 14.6% in August, according to data provided by S&P Global Market Intelligence. The bank stock is currently trading at about $7.80 per share and is down roughly 65% year to date.

The major market indexes were all down in August as the S&P 500 fell 1.6%, the Dow Jones Industrial Average dropped 2.4%, and the Nasdaq Composite plunged 1.7% last month. 

So what

PacWest, based in Beverly Hills, California, is the 52nd-largest U.S. bank, with roughly $38.2 billion in assets as of June 30. It got hit hard back in March and April after the collapse of Silicon Valley Bank, as it also served start-ups and venture capitalists and suffered as a result, even though it did not have anywhere near the amount of uninsured deposits.

But a lot has changed since then as PacWest has been busy selling off assets. The big news in July was that it was merging with Banc of California to form a combined bank with some $47 billion in assets, $30.5 billion in deposits, and $25.3 billion in loans. The new bank, which will be branded as the Banc of California, will serve Southern California with about 70 branches. 

The market reacted favorably to the merger news, but in August, other factors dragged down most regional banks, as the KBW Nasdaq Regional Banking index was down 8.2% during the month.

The driver was a report from Moody's, which downgraded 10 regional banks due to the likelihood that they could face profitability pressures, given various factors, including high interest rates and the economic environment. Neither PacWest nor Banc of California were among those 10 banks, but the news rattled the whole industry. 

Now what

There could be more turmoil for regional banks ahead. In June Fitch Ratings downgraded the entire industry, and in a TV spot last month, one of the analysts, Chris Wolfe, said another industry downgrade could lead to some 70 banks being reevaluated, with potentially more downgrades.

That's certainly not a given that the industry's rating will drop again in the fall, but it should raise the eyebrows of regional bank investors.  

As for PacWest, the merger with Banc of California is expected to close either by the end of 2023 or early 2024. Stay tuned for more news on that as it approaches.