Topline
Banc of California is acquiring PacWest, the company announced Tuesday, a move that could shore up the embattled PacWest on the heels of a regional banking scare—but early reports of the merger between two Southern California-based rivals forced shares of PacWest to drop nearly 30%, before rebounding in aftermarket trading.
Banc of California announced it would buy PacWest Bancorp, the parent of Pacific Western Bank, in an … [+]
Key Facts
The deal, which is an all-stock sale, will see PacWest stockholders receive 0.6569 of a Banc of California common share for each PacWest common share they own.
The combined bank will be headquartered in Los Angeles and led by Banc of California’s current CEO, and will operate with the Banc of California brand.
Affiliates of private equity firms Centerbridge and Warburg Pincus will also invest $400 million in equity financing, Banc of California said.
After the merger talks were reported by the Wall Street Journal, PacWest shares fell 27% to close at $7.69 Tuesday while Banc of California shares were up 11.2% to $14.62—but shares of PacWest rebounded after the deal was confirmed by the two companies, and were trading above $10 in aftermarket trading as of 5:20 p.m.
PacWest stock has fallen 66% year-to-date.
Following the collapse of Silicon Valley Bank and two other regional banks, many feared for PacWest due to deposit outflows, but the two banks came out of that banking scare relatively fine, with both stocks rebounding somewhat since May, the Journal noted.
Key Background
Over two days in March, Silicon Valley Bank collapsed following a bank run, marking the third-largest collapse in U.S. history. Soon after, First Republic Bank and Signature Bank became the second- and fourth-largest collapses in U.S. history, respectively. All three banks were shut down by regulators and sold to competitors in sales facilitated by the Federal Deposit Insurance Corporation, with JPMorgan Chase buying First Republic while regional bank First Citizens bought SVB. The quick succession of collapses generated fears—that have so far not come to pass—of a widespread crisis among regional banks like PacWest, which are far smaller than the nation’s largest commercial banks. In June, these fears led PacWest to sell $2.7 billion of its lender finance loan portfolio in an effort to improve its cash supply and be able to fulfill potential withdrawal requests, according to Yahoo Finance. On May 3, the bank saw an over-50% plummet in its share price after rumors surfaced it was considering a sale.
Key Background
Over two days in March, Silicon Valley Bank collapsed following a bank run, marking the third-largest collapse in U.S. history. Soon after, First Republic Bank and Signature Bank became the second- and fourth-largest collapses in U.S. history, respectively. All three banks were shut down by regulators and sold to competitors in sales facilitated by the Federal Deposit Insurance Corporation, with JPMorgan Chase buying First Republic while regional bank First Citizens bought SVB. The quick succession of collapses generated fears—that have so far not come to pass—of a widespread crisis among regional banks like PacWest, which are far smaller than the nation’s largest commercial banks. In June, these fears led PacWest to sell $2.7 billion of its lender finance loan portfolio in an effort to improve its cash supply and be able to fulfill potential withdrawal requests, according to Yahoo Finance. On May 3, the bank saw an over-50% plummet in its share price after rumors surfaced it was considering a sale.
Big Number
$36.1 billion. That’s how much in total assets the combined bank will hold, according to Banc of California. It’ll have $25.3 billion in total loans and $30.5 billion in total deposits.
What To Watch For
Whether other regional banks merge in the wake of this year’s banking scare. In May, Treasury Secretary Janet Yellen said more banks would likely have to merge in the coming months, the Journal reported at the time. She said she was confident the industry wouldn’t see the instability it saw in March, but signaled that regulators were preparing for issues to continue flaring up. She noted that the Treasury Department didn’t want “overconcentration” and was “pro-competition,” but “that doesn’t mean no” mergers. “We have more banks, relatively speaking, in the United States than almost any country of which I’m aware,” Yellen added.
Tangent
The KBW Nasdaq Regional Bank Index, which tracks the performance of publicly traded smaller banks, increased 7.3% last week. That’s it’s most successful week in over a year.
Further Reading
Banc of California, PacWest in Advanced Talks to Combine (Wall Street Journal)
Another Bank On The Brink: PacWest Stock Crashes 53% As It Reportedly Weighs Sale (Forbes)
Some Silicon Valley Bank Customers Still Owe Loan Payments Despite Losing Their Deposits, Report Says (Forbes)
Source: https://www.forbes.com/sites/willskipworth/2023/07/25/pacwest-bank-shares-fluctuate-30-ahead-of-sale-to-rival-banc-of-california/