PacWest sells loan portfolio for over $3.5B
LA-based bank offloaded large portion of real estate loans during spring banking crises
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PacWest Bancorp on Monday confirmed the $3.54 billion sale of a loan portfolio to asset firm Ares Management.
The U.S. regional lender said the decision to offload the portfolio was to boost liquidity amid the Federal Reserve’s relentless rate hike strategy, which has subsequently increased the risk of more loans going bad as banks reduce their lending exposure to beleaguered sectors like commercial real estate.
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Earlier this month, the Fed warned that tighter U.S. credit conditions following the spring banking crises could hinder economic growth this year.
Federal Reserve Chairman Jerome Powell testifies during a Senate Banking Committee hearing, Thursday, June 22, 2023, on Capitol Hill in Washington. (AP Photo/Mariam Zuhaib)
In its semi-annual monetary report to Congress, the central bank noted that bank lending conditions have "tightened notably" over the past year due to the rapid increase in interest rates and the recent turmoil within the financial sector.
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"Evidence suggests that the recent banking-sector stress and related concerns about deposit outflows and funding costs contributed to tightening and expected tightening in lending standards and terms at some banks beyond what these banks would have reported absent the banking-sector stress," the report said.
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Meanwhile, Ares said its alternative credit arm bought PacWest's loans using funds from Barclays.
Los Angeles-based PacWest also sold its real estate lending unit and a large portion of its real estate loans in late May.
Through the sale of such loans, some regional banks in the U.S. are now trying to shore up capital and build investor confidence following the recent banking crisis.
People queue up outside the headquarters of Silicon Valley Bank to withdraw their funds on March 13, 2023 in Santa Clara, California. (Liu Guanguan/China News Service/VCG via Getty Images / Getty Images)
The transaction will improve liquidity and capital as the bank implements a strategy to focus on relationship-based community banking, PacWest CEO Paul Taylor said in a statement.
The regional bank already took in $2.01 billion in proceeds from the sale of its lender finance loan portfolio, according to a filing with the Securities and Exchange Commission.
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Its lender finance arm provided loans to small business lenders, commercial real estate lenders and consumer lenders.
PacWest Bankcorp
.As banks rush to sell, private equity firms and other asset managers are taking advantage of the situation.
In April, Blackstone said the crisis offered a "golden moment" to expand its credit business.
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Reuters and FOX Business' Megan Henney contributed to this report.