On Tuesday, PacWest Bancorp announced it has agreed to sell its subsidiary PacWest Bank to arch-rival Banc of California in a deal worth $1.1 billion. Both lenders have signed a “definitive agreement pursuant” to which they will combine an all-stock merger transaction and form a new bank called the Pacific Western Bank.
Shares of PacWest Bank soared 28% in pre-market trading on Wednesday after news about the merger broke out. Meanwhile, Banc of California shares rose roughly 3% in the same time frame.
Banc of California Set To Merge With Failed PacWest Bank
Under the terms of the deal, PacWest Bancorp – the Los Angeles headquartered holding company that owns PacWest Bank – has agreed to merge PacWest into Banc of California, and Banc of California will then merge into Pacific Western Bank.
After the transaction is closed, a new holding company will be formed, which along with PacWest Bank will be managed by the Banc of California under its name and branding.
The all-stock deal will result in Pacific Western Bank having approximately $36.1 billion in assets, $25.3 billion in total loans, and $30.5 billion in total deposits. The new bank will also be operating more than 70 branches in California.
To fund the merger, Banc of California and PacWest Bank have entered into investment agreements with private equity firms Warburg Pincus and Centerbridge Partners that will see them raising $400 million by selling newly issued stocks at $12.30 per share.
The terms of the agreement suggest that for every share owned by PacWest shareholders, they will receive 0.6569 Banc of California common stock shares.
Jared Wolff, the President and CEO of the Banc of California will lead the new bank. John Eggemeyer, the lead director on the board of PacWest, is assigned to chair the combined holding company’s board of directors. Pacific Western Bank’s board will consist of 12 members, 8 from the Banc of California, 3 from the board of PacWest, and one from the Warburg Investors.
According to both banks, the merger will create “the premier Californian business banking franchise” that will be well-positioned to capitalize on market opportunities by “broadening” its channels and providing customers with “increased scale and expanded product offerings.”
The Collapse of Mid-Sized American Banks In March
The latest U.S. banking crisis hit PacWest Bank hard. The Californian bank, which had a total of $44 billion worth of assets under management at the end of March, has been signing off deals to sell some of its possessions to raise capital and strengthen its financial position.
In June, PacWest announced the sale of its lender finance portfolio to asset manager Ares Management for $3.54 billion. That same month, the bank also agreed to sell $5.7 billion in loans to real estate investment firm Kennedy Wilson Holdings.
The bank’s downfall was attributed to the collapse of Silicon Valley Bank and Signature Bank, which became the second and third-biggest banking failure in the history of the United States and the largest since the 2008 financial crisis.
The banking turmoil saw PacWest Bancorp suffer heavy losses with more than two-thirds of its value shaved off in the first quarter of 2023. The bank has since been weighing on a sale.
Federal Government Urges Regulators to Approve Banks Mergers and Sales to Save the U.S. Economy and the Banking System
The federal government has been in constant negotiations with potential buyers to sell all the banks that tanked in March. Most bank mergers have been put on hold for months due to economic conditions or are still waiting for regulatory approval.
The Office of the Comptroller of the Currency, which regulates the Banc of California, and the Federal Deposit Insurance Corporation, under whose management PacWest Bank has been since its collapse, both gave the green light to go ahead and complete the $1.1 billion merger deal.
As per the terms agreed, Banc of California’s balance sheet will be marked by authorities, while PacWest will be considered the “accounting acquirer” and will avoid the markers. Compared to PacWest Bank, the Banc of California only has assets worth $10 billion under management. The merger is expected to be complete later this year or in early 2024
Earlier this year, Treasury Secretary Janet Yellen urged regulators to be more open to mergers and acquisitions among the country’s mid-sized banks, owing to the current banking and economic environment.