Weak Loan Growth Makes PacWest's Spread Compression Even More Painful

All things considered, I’d say that PacWest Bancorp (PACW) held up well in trading after earnings, given that there were few real positives in the quarter and core pre-provision profits missed by a pretty wide margin. Spread compression was already built into expectations, but instead of the second half loan acceleration bulls were hoping for, deceleration is what they got.

I was cautious on PacWest when I last wrote about the stock because I was worried about the choppy near-term outlook (increasing loan competition, increasing spread pressures, and pressures on credit), and the shares have underperformed the broader banking group by about 10% since then. While I do see value in the shares, and the dividend helps lessen the sting, the last few quarters have me on edge regarding the bank’s real competitive advantages and the underlying end-market conditions.

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Weak Loan Growth Makes PacWest's Spread Compression Even More Painful