PacWest rallies on dividend cut to bolster capital

(Reuters) -Shares of PacWest Bancorp jumped 24% on Monday and led a recovery in the battered U.S. banking sector after the lender sharply cut its quarterly dividend to shore up its finances.

On Friday, Los Angeles-based PacWest said it would pay a dividend of 1 cent per common share, compared with its regular payout of 25 cents, citing economic uncertainty and volatility in the industry.

“Given the extreme volatility in the stock recently … we believe this dividend reduction makes sense and can help the pace of capital building,” RBC Capital Markets analysts wrote in a note.

PacWest shares, which soared nearly 82% in their last trading session, were currently trading at $6.98. They were hammered to a record low last week after the bank said it was exploring strategic options, including a potential sale or capital raise.

Other U.S. regional banks also gained sharply as investors tiptoed back into the sector. Peers Western Alliance (NYSE:) Bancorp surged 11% and Comerica (NYSE:) Inc climbed 7%, while Zions Bancorp rose 9%.

First Horizon (NYSE:) Corp inched up 1%. Last week, Canada’s Toronto-Dominion Bank called off its $13.4 billion takeover deal for First Horizon, citing regulatory uncertainty.

The collapse of three U.S. lenders in two months has sent shockwaves through the sector, with investors dumping shares of even those banks that analysts say are financially sound.

The sector, however, showed some semblance of stability on Friday, with the KBW Regional Banking index gaining nearly 4.7%.

“Friday was a bit of a reprieve, but we continue to believe that equity manipulation, if unabated, presents a risk to the confidence needed for the U.S. banking system to function,” Piper Sandler analyst Mark Fitzgibbon wrote in a note.

“Regional bank turmoil has increased at a pace that is disconnected from the reality of the fundamentals.” 

The index is still down more than 26% since the beginning of the crisis in March. Some have attributed the punishing slide in recent weeks to increased short-selling pressure, and have called for a temporary ban on the practice like during the financial crisis in 2008.

U.S. federal and state officials are also assessing whether “market manipulation” caused the recent volatility in banking shares, Reuters reported on Thursday, citing a source familiar with the matter.

Billionaire Warren Buffett, whose views are closely watched by investors, said on Saturday his conglomerate Berkshire Hathaway (NYSE:) was cautious around the banking sector.

The “very poor” messaging from politicians, regulators and the press around the bank failures had unnecessarily frightened depositors, Buffett said.

Since Silicon Valley Bank collapsed in March, several lenders have been issuing regular updates on deposits and liquidity to drive confidence in customers and shareholders.

For the week ended April 26, deposits at small banks totaled $5.32 trillion, down just 0.5% from a week earlier, according to data from the Federal Reserve.