PacWest cuts dividends as shares surge

Teetering regional lender PacWest Bancorp saw its shares jump as much as 24% on Monday to lead a recovery in the battered US banking sector before paring gains.

The rebound comes after Los Angeles-based PacWest announced a sharp cut to its quarterly dividends in order to build capital in a late Friday update. Dividends were cut to just one penny per share — down 96% from 25 cents per share in the previous quarter.

PacWest CEO Paul Taylor reassured investors after the Friday announcement that “business remains fundamentally sound.”

“Given current economic uncertainty, recent volatility in the banking sector and potential changes in regulatory capital requirements, we view reducing the dividend as a prudent step to accelerate our plans to build capital,” Taylor said.

The bank shares spiked 24% after Monday’s opening bell, but dipped to a 10% spike at 11 am ET. The stock remains down roughly 75% year to date. The stock closed at $5.97, up 3.7%.

Other US regional banks also gained as investors tiptoed back into the sector. Peers Western Alliance Bancorp rose 0.6% and Zions Bancorp rose 2.1%.

The jumps serve as hope of possible recovery as the US banking sector struggles to recover from the collapse of First Republic Bank on May 1 — the country’s third major bank to fail in two months.

Over the weekend, billionaire Warren Buffett, whose views are closely watched by investors, said his conglomerate Berkshire Hathaway 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.