Banc of California set to merge with PacWest
According to the joint announcement the two banks released Tuesday afternoon, ahead of their second-quarter earnings announcement, PacWest Bancorp (PACW) will merge with Banc of California for $400 million.
Both California-based banks will merge into one called Pacific Western Bank under the terms of the deal.
As a result of the collapse of three regional banks earlier this year, the move is meant to restore confidence in the sector.
According to Jared Wolff, president and CEO of Banc of California, the combined company will have the strength and market position to support small and medium-sized businesses in California and take advantage of the opportunities created by recent banking industry turmoil for stronger financial institutions. The merged bank will continue to be led by Wolff as president and CEO.
PacWest reported a net loss of $197.4 million last quarter. According to the Beverly Hills-based bank, total deposits declined by $290 million to $27.9 billion last quarter. A much smaller decline in net income of $2.4 million was reported by Banc of California last quarter. Last quarter, the Santa Ana-based bank’s deposits decreased from $7 billion to $6.9 billion.
In March, Silicon Valley Bank failed, sending shock waves throughout regional banks in the United States. In an effort to keep depositors from transferring their funds to other banks, regional banks were able to regain their footing last quarter by offering higher interest rates on deposits at the expense of their profits, according to second-quarter earnings reports from various regional banks.
SVB was America’s 16th-largest bank before it collapsed in March. After a panicked, social media-fueled run on the bank, it collapsed suddenly.
During an era of near-zero interest rates, SVB had invested billions into US government bonds. In order to tame inflation, the Federal Reserve hiked interest rates aggressively, eroding the value of SVB’s bond portfolio at the time.
According to the announcement, Centerbridge Partners and Warburg Pincus will fund the all-stock merger by early next year.
As a result of early reports about the deal in The Wall Street Journal, PacWest stock closed down 27% on Tuesday. As of after-hours trading, the stock was up 30%. Each PacWest shareholder will receive 0.66 of a Banc of California share once the deal closes.
In the meantime, Banc of California closed 11% higher. During after-hours trading, the stock was up around 10%.