West Coast regional lenders with large commercial real estate loan portfolios are feeling the pain after the collapse of Silicon Valley Bank on Friday and the closure of Signature Bank over the weekend.
During Monday, the Securities & Exchange Commission halted and resumed trading on shares of San Francisco-based First Republic Bank, Western Alliance Bancorporation and PacWest Bancorp. At one point in the day, First Republic plunged more than 70 percent. Western Alliance Bancorporation at one point were down 80 percent while PacWest Bancorp shares dropped about 55 percent.
All three are major multifamily and commercial lenders across the West Coast, collectively providing billions to finance acquisitions, refinance properties and construct new developments.
Silicon Valley Bank’s real estate loan portfolio will change hands, as the Federal Deposit Insurance Corporation — now in control of SVB — works to sell off the failed bank’s assets.
For borrowers, loans still must be paid off, but any new lender could be aggressive in pursuing actions against default.
Silicon Valley Bank, which was a go-to for those in the tech industry, held about $11 billion worth of residential and commercial loans on its balance sheet. But the three regional banks in trouble hold a lot more.
At the end of last year, 52 percent of all loans provided by First Republic Bank were secured by real estate in California, according to the firm’s 2022 annual report.
First Republic held $62 billion worth of residential mortgages across San Francisco, Los Angeles and the rest of California in 2022.
The bank also held about $24 billion worth of commercial real estate loans at the end of last year, with the majority for multifamily properties in San Francisco, plus a further $5 billion for real estate construction across California.
On Friday, after SVB’s collapse, the firm said in a statement that it has “very strong” liquidity and a diversified deposit base.
“No one sector represents more than 9 percent of total deposits, with the largest being diversified real estate,” the bank said in a filing with the SEC.
For protection, First Republic also scored additional liquidity from the Federal Reserve Bank and JPMorgan on Sunday, increasing its total available liquidity to $70 billion. Executive Chairman Jim Herbert told CNBC on Monday that the bank was not seeing a huge rush of customers cashing out of their deposits.
PacWest Bancorp, a Los Angeles-based bank with $41 billion in assets, held about $15.2 billion in total real estate mortgages at the end of 2022. The majority are residential — about $11.4 billion worth — while the remaining $3.8 billion are for commercial developments.
In a similar statement, meant to reassure investors and customers, PacWest said in an SEC filing it is “actively adapting in the current economic environment” and has tried to improve its balance sheet over the last year.
Phoenix-based Western Alliance Bank had $31.8 billion worth of commercial real estate loans on its books, plus $15.9 billion worth of residential mortgages, according to the firm’s annual report.
Most of the loans are backed by properties in Los Angeles, Phoenix, Las Vegas, San Francisco and other cities in the western U.S.
At the end of 2022, about 16 percent of the bank’s commercial loans were for office properties.
“The company’s loan portfolio includes significant credit exposure to the CRE market,” it said in its annual report.
Western Alliance also tried to reassure investors and customers, saying it holds $61.5 billion in deposits and $2.5 billion in cash on its balance sheet.