PacWest Bancorp is being bought by smaller rival Banc of California as it seeks to navigate a bout of upheaval that brought down a handful of its peers.
The deal includes a $400 million investment from Warburg Pincus and Centerbridge Partners, which obtain about 20% of the combined company and receive warrants to buy more shares, the banks said Tuesday.
PacWest stockholders will get 0.66 of a share of Banc of California common stock for each of their shares. The banks will sell assets with the aim of repaying $13 billion of wholesale borrowings, they said.
The merger is aimed at shoring up confidence in the banks after a run on deposits struck several US regional lenders earlier this year, leading to the collapse of three California-based banks and one in New York. Rising interest rates depressed the value of bonds they bought when rates were low, and the sudden surges in customer withdrawals forced some of them to sell those assets at a loss.
Shares of Banc of California surged as much as 22% after the Wall Street Journal reported the pair were in talks. PacWest shares closed down 27% before recovering those losses in after market trading.
The combined bank will have about $36 billion of assets, less than what PacWest alone had at the end of March. The firms will carry the Banc of California name and that firm’s chief executive officer Jared Wolff will lead management. The deal is expected to close late this year or early in 2024.
“This transformational merger will create a robust, well-capitalized and highly liquid institution poised to deliver exceptional service to even more California businesses and communities,” Wolff said. “We believe both Banc of California and PacWest stockholders will benefit from the compelling economics of the combined company.”
PacWest, a Beverly Hills-based regional bank, has been shedding assets to bolster liquidity. In May, the bank said it was weighing strategic options and had been approached by potential investors. Shortly after, it sold a pile of real estate loans to Kennedy Wilson Holdings Inc., an asset-backed loan portfolio to Ares Management Corp. and tapped an Apollo Global Management unit for a financing facility.
“Getting caught in the headlines could have happened to any bank. A liquidity run could have happened to anybody,” Wolff said on a call discussing the deal to buy PacWest. “The way that they’ve de-risked the franchise and moved it more toward a community bank and layered on some good deposit generators is gonna be a really good fit for us.”
Santa Ana-based Banc of California had $10 billion of assets at the end of March, making it less than a quarter of the size of PacWest. But it saw relatively small deposit outflows in the first quarter and its 17% stock drop this year through Monday was mild compared PacWest’s 54% plunge.
After the deal closes, the combined company will have $25.3 billion in total loans, $30.5 billion in total deposits and more than 70 branches in California, according to the statement. The combined bank expects to earn $1.65 to $1.80 per share next year.
“The bank’s prospects as a going concern had a high degree of uncertainty and M&A was the most practical course of action,” Truist Securities analyst Brandon King said in a note.
PacWest isn’t counted among the industry’s giants, ranking outside the top 25 biggest US banks. Established in 1999, PacWest focused on small, middle-market and venture-backed businesses. The bank grew in part through 31 acquisitions since 2000, with offices in California, Durham, North Carolina and Denver, plus loan-production offices around the country. It had 2,438 full-time, part-time, and temporary employees at the end of last year, according to regulatory filings.
Chief Executive Officer Paul Taylor tried multiple times this year to reassure investors about PacWest’s stability, with the bank saying in March that it had taken steps to get rid of noncore products and boost earnings, which led deposits to stabilize.
PacWest’s total deposits stood at $27.8 billion as of July 21, according to a company presentation. The company said that was up more than 7% from mid-May.
Banc of California will be the legal acquirer, and Banc of California NA will merge with and into Pacific Western Bank.
(Updates with executive, analyst comments from seventh paragraph.)