PacWest Running Hard To Stay In Place

PacWest (PACW) is in a strange place right now, as management actively tries to upgrade and de-risk the loan book, offset major pressure from paydowns and payoffs, and figure out how to profitably grow deposits in an environment of increasing deposit cost pressure. While core earnings per share were basically in line with expectations, spread compression still remains a risk.

I still like the basic business that PacWest is in – niche commercial lending for smaller businesses and financial products for tech and VC firms like the capital call lending that has also been a growth driver for First Republic (FRC). It’s going to be hard for PacWest to make much core earnings headway with high repayment levels and rising deposit costs, but the longer-term potential is still attractive and the bank’s large dividend yield will pay investors to wait, though investors should realize that this isn’t “money for nothing” and the business strategy pursued by PacWest is riskier compared to typical community banks.

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PacWest Running Hard To Stay In Place