Buying The Dip On This Struggling Bank Stock Is Not The Next SVB, Says Piper Sandler

It is with great pride that Piper Sander, a financial services company, reported that PacWest Bancorp, a regional bank, has survived large withdrawals of deposits and is now poised to rebound.

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In a note published Wednesday evening, analyst Matthew Clark reiterated his overweight rating on the stock, saying that despite recent withdrawals from deposit accounts, the company nonetheless appears to be on solid footing.

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In the note, we emphasized that the company has a strong cash position that exceeds its uninsured deposits as well as its [tier 1 capital] which has not been impacted in any material way, and it was able to avoid a dilutive raise as a result.

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When Silicon Valley Bank went under in the aftermath of the 2008 financial crisis, PacWest was one of several regional banks that saw customers withdraw their deposits.

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PAC West shares fell 17% on Wednesday, reaching $10.12 after the company revealed that it had lost over $6 billion in deposits since March 9, which led to the company's latest update in which it stated that over $6 billion had been lost in deposits. In the venture banking business, the firm's account receivable outflows appear to be primarily a result of outflows. Since the start of the month, the price of the stock has fallen by more than 60%.

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It was also revealed Wednesday that the company has decided not to raise capital at this time because its deposits have stabilized.

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According to Piper Sandler's price target for PacWest shares, they look for the stock to reach $33 per share, which is more than 200% higher than Wednesday's close.

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The deposit outflows, it's believed, will have a considerable impact on earnings due to the decrease in deposits, according to Clark. A year ago, the stock was trading at over $40 per share, which was a significant price increase.

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As deposits have dropped to $27B as a result of PACW being able to unwind its excess liquidity position at the end of the year, we believe it is safe to say that PACW's balance sheet will likely be a lot smaller in the following quarters as it can now continue to reduce deposits. As PACW slowly shrinks its balance sheet by deliberately reducing its cash holdings, we don't believe it would be required to raise dilutive capital, however, we do believe it can have a negative impact on the profitability of PACW in the future.