This has been a bad year for growth banks in general, and particularly those banks with sizable venture capital and/or private equity lending businesses. The market has likewise been merciless with banks showing vulnerability to higher than expected deposit betas and weaker growth leverage in FY’23 and beyond. With PacWest (NASDAQ:PACW) ticking all of those boxes, it’s been a brutal run since my last update on the stock, with the shares down about 50% against a roughly 10% drop in the larger regional bank group – SVB Financial (SIVB) and Signature (SBNY) have done similarly poorly, but that’s cold comfort at best.
I’ve been very surprised by the performance challenges at PacWest this year, as I thought management would be better able to leverage low-cost deposits to fund loan growth and drive better operating results. At this point I’m tempted to think that the worst of the damage is done, but it’s going to take visibility on better spread performance and operating leverage, as well as more confidence in the outlook for private equity/VC lending demand, before the Street is likely to reconsider this name again.
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