Banc of California and PacWest to merge, raise $400 million in equity
PacWest was among the lenders that was rocked by the collapse of three regional banks earlier this year
Banc of California and PacWest Bancorp will merge in an all-stock deal to create a bank with $36 billion in assets, the companies announced on Tuesday.
The lenders also raised $400 million in equity from investors managed or advised by Warburg Pincus and Centerbridge Partners.
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The combined bank will have $25.3 billion in total loans and more than 70 branches in California. It will be based in Los Angeles and led by Banc of California CEO Jared Wolff, who previously served as PacWest's general counsel.
A Pacific Western Bank branch in Encino, California, US, on Saturday, April 22, 2023. PacWest Bancorp is scheduled to release earnings figures on April 25. Photographer: Morgan Lieberman/Bloomberg via Getty Images (Photographer: Morgan Lieberman/Bloomberg via Getty Images / Getty Images)
Shares of PacWest plunged 27%, while Banc of California surged 10% after the Wall Street Journal reported news of a potential deal, citing people familiar with the matter.
PacWest was among the lenders that was rocked by the collapse of three regional banks earlier this year, prompting the worst industry turmoil since the 2008 financial crisis.
"Both the banks are in the same geographies, are focused on commercial assets and so this could be seen as a marriage of convenience," Timothy Coffey, an analyst at Janney Montgomery Scott, said before the deal was announced.
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Treasury Secretary Janet Yellen had said in May that more mergers among midsize U.S. banks could be necessary after a series of bank failures.
PacWest has been signing deals to shed some assets and strengthen its balance sheet. Last month, it said it would sell a $3.54 billion lender finance portfolio to asset manager Ares Management.
While the turbulence at regional banks has abated and lenders have stemmed deposit outflows, there remain concerns that some lenders may still be struggling.
U.S. Treasury Secretary Janet Yellen testifies about the Biden Administration's FY2024 federal budget proposal before the Senate Finance Committee in the Dirksen Senate Office Building on Capitol Hill on March 16, 2023 in Washington, DC. (Chip Somodevilla/Getty Images / Getty Images)
The deal marks a rare transaction in the market after several months of government-negotiated sales of failed banks. Bank mergers have also been held up or scrapped for months awaiting regulatory approval.
PacWest had a market capitalization of $1.24 billion as of Monday, almost 63% higher than that of Banc of California, according to Refinitiv data.
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PacWest had total assets of $44 billion at the end of March, while Banc of California had assets of $10 billion, according to separate company filings.
A spokesperson for the Office of the Comptroller of the Currency, which regulates the Banc of California, declined to comment. The Federal Deposit Insurance Corporation, which oversees PacWest, did not respond to a request for comment.
A general view of Pacific Western Bank in Huntington Beach, Calif., Mar. 22, 2023. (Reuters/Mike Blake / Reuters Photos)
The recent banking crisis has underscored predictions for a round of industry consolidation, analysts said, but uncertainty over changing capital rules has deterred transactions so far.
The U.S. currently has more than 4,700 banks, government data showed. It is likely that only half may survive in a decade's time, Nomura believes.
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The global financial crisis of 2008 had also shrunk the size of the banking sector. From 2007 through 2013, the number of independent commercial banks operating in the U.S. shrank by 14%, or 800 institutions, government data showed.
Reporting by By Niket Nishant and Nupur Anand