After losing significant value amid the collapse of several regional banks earlier this year, PacWest Bancorp Inc. has found a suitor to help shore up its assets. On Tuesday the bank announced it would merge with its smaller Santa Ana-rival Banc of California, Inc.— a deal analysts doubt will spur value beyond stabilizing a shaky regional banking market.
The all-stock deal would create a $36 billion lender headquartered in Los Angeles under the Banc of California name; it would operate 70 retail locations throughout Southern California.
Wedbush Securities Inc., an investment firm headquartered downtown, released an analysis of the merger following the announcement. Wedbush analysts said PacWest was likely a seller well before the first quarter’s banking crisis. The sector’s recent stress accelerated the plan to pen what they describe as a merger risky for shareholder approval.
“We ultimately expect the deal to get approved, but we wouldn’t be surprised if there were some dissent among a minority of shareholders and possibly open the door to the potential emergence of a rival third-party bid,” the report said.
PacWest is the third largest bank in Los Angeles County, with its Q2 reporting of $38.3 billion in assets far exceeding Banc of California’s $9.4 billion. In May PacWest announced it was reviewing strategic options after losing $5 billion in deposits in the first quarter. To stifle a bank run, PacWest sold off a combined $7.3 billion portfolio following the announcement. The bank had also secured financing from Atlas SP Partners L.P.
Wedbush believes PacWest chief executive and president Paul Taylor was appointed in June of last year solely to steer the bank to a selling point within his first year. In the combined bank’s executive suite presented to investors on Tuesday, Taylor’s name was nowhere to be found. Jared Wolff, the chief executive and president of Banc of California, will retain his role over the merged entities. Wolff previously served 12 years as the president of PacWest.
The merger will be financed by private equity groups Warburg Pincus LLC and Centerbridge Partners L.P. Both firms will receive $400 million in new equity, giving them about 19% of the combined business. This capital raise will help the new bank repay more than $13 billion in wholesale borrowings.
In a commentary published by DBRS Inc. on Wednesday, the credit ratings agency said it viewed the merger without the need for FDIC assistance as a positive sign for the bank, expecting further private capital investments in the sector.
Regional banks have had a tumultuous year, with many posting sharp profit declines in their second-quarter earnings. Net interest income, the difference between loan interest income and deposit payments, also shrank for midsize lenders, as banks had to pay more interest to quell depositor qualms.
