PacWest (NASDAQ:PACW) stock jumped more than 27% overnight after the company agreed to be bought by Banc of California (NYSE:BANC) for $1.1 billion in stock. Shares of PACW stock are currently up 28% as of this writing.
Private equity companies Warburg Pincus and Centerbridge have agreed to take $400 million of new BANC stock in the deal. The federal government was not involved.
PacWest was rumored to be going under in the wake of the SVB and Signature Bank collapses this past spring. The recent overnight gain matches the loss PACW stock saw in trading on July 25, when the deal was called “imminent.”
PACW stock opened today at $9.79 per share. Meanwhile, shares of BANC stock opened at $14.78 per share.
PACW Stock: One Plus One Equals One?
This deal reads like an all-clear signal for regional banks, especially since the Federal Reserve was not involved in the takeover. The private equity groups will be getting 19% of a bank with $36 billion in assets and $31 billion in deposits. Banc of California is also getting a very good deal. As of March 31, it was the 135th largest U.S. lender while PacWest was 49th. Investors may get a good deal as well. The combination now trades at a tiny fraction of its assets or loan balance.
Before the deal, however, PacWest had been frantically selling off loan portfolios to shore up its capital. Customers pulled 9.5% of their deposits when First Republic closed. Last month, PacWest sold $3.5 billion in small loans to Ares Capital (NASDAQ:ARCC), run by billionaire Tony Ressler.
Banc of California recently reported quarterly net income of $17.9 million, claiming “solid earnings and stable deposits.” However, net income and net interest income were also down from the March quarter. Meanwhile, PacWest reported a loss of $207.4 million, or $1.75 per share, during the quarter.
Banc of California CEO Jared Wolff, who previously worked at PacWest, will become CEO of the combined bank. Wolff is not projecting growth for the bank in 2024 as the operations are combined.
What Happens Next?
PacWest got in trouble for having a lot of uninsured deposits. Banc of California describes itself as a community bank. Its name also did not come up during the banking crisis, although shares were down by nearly half from their pre-crisis peak.
No news can sometimes become good news.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
