Banc of California and PacWest Bancorp Announce All-Stock Merger, Creating a Banking Giant Amidst US Banking Crisis
Shares of Banc of California and PacWest Bancorp soared after the banks announced their merger in an all-stock deal on Tuesday–a landmark event following the U.S. banking crisis in March.
The market reacted positively to the merger, with PacWest shares surging 31.3% to $10.10 each in after-hours trading, counteracting a 27% slump earlier in the day. Meanwhile, Banc of California shares climbed 8.4% to $15.85 each after-hours, following an 11% rise on Tuesday.
The merging banks will form a new entity with $36 billion in combined assets and $30.5 billion in total deposits. The deal, expected to conclude by early 2024, also sees private equity firms Warburg Pincus and Centerbridge Partner buying $400 million worth of new shares to fund the merger.
Jared Wolff, current CEO of Banc of California, who will be leading the new institution, commented on the rapidly changing banking environment in California. "We've seen many other banks either completely exit or significantly pull back from California. As a result, there's a sizable opportunity," said Wolff.
The "marriage of convenience" between the two banks comes at a time of intense speculation, especially after PacWest's announcement of a potential sale over two months ago. Both institutions operate in the same geographies, focusing primarily on commercial assets, a factor that made the merger more practical.
This year has seen considerable consolidation in the U.S. banking industry, sparked by the banking crisis in March. After the collapses of Silicon Valley Bank and Signature Bank, a flurry of acquisitions ensued. These included JPMorgan's acquisition of First Republic Bank, First Citizens Bank's purchase of Silicon Valley Bank, and New York Community Bancorp's buyout of most of Signature Bank.
PacWest Bancorp, parent of Pacific Western Bank, had a close call with failure earlier this year, resulting in a two-third drop in stock value over fears it would be the next bank to fold. Its business model, similar to that of First Republic Bank, involved serving affluent customers and offered favorable loans and became a liability amidst the banking crisis. Billions of dollars worth of unrealized losses in its bond portfolio and the presence of uninsured deposits above $250,000 added to its risks.
However, the merger announcement offers a reprieve for PacWest and its shareholders. The deal will see PacWest shareholders receiving Banc of California shares valued at $9.60, a significant step up from the fire-sale speculation.
In related news, JPMorgan Chase & Co will facilitate the merger by buying almost $2 billion worth of mortgages from Banc of California's portfolio, aiding the balance sheet of the combined bank. The mortgage purchase is expected to coincide with the merger's completion by late 2023 or early 2024 and provides another level of security in an industry rattled by recent bank failures.
Overall, the Banc of California and PacWest Bancorp merger indicates a resilient banking industry response to the recent crisis. While the landscape is evolving with banks exiting or retracting from California, this union and others like it suggest the potential for stability and growth in a challenging environment.
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