Banc of California (BANC.N) and PacWest Bancorp (PACW.O) have announced an all-stock merger that will create a bank with $36 billion in assets. This comes after a period of crisis in the regional banking sector. To finance the merger, the lenders will sell $400 million of new shares to private equity firms Warburg Pincus and Centerbridge Partners. The combined bank will have $25.3 billion in total loans and over 70 branches in California. It will be headquartered in Los Angeles and led by Banc of California CEO Jared Wolff.
PacWest was one of the banks affected by the collapse of three regional banks earlier this year, which caused significant industry turmoil. Analysts have described the merger as a “marriage of convenience” due to the banks’ similar focus on commercial assets and geographical presence. Following the announcement, shares of PacWest surged 34% and Banc of California jumped 9%.
Under the terms of the merger agreement, PacWest stockholders will receive 0.6569 Banc of California shares for each PacWest share they currently own. Additionally, the two private equity firms will receive new Banc of California stock worth $400 million. The merger is expected to be completed by late 2023 or early 2024.
The recent banking crisis has highlighted the need for industry consolidation, but regulatory approval and changing capital rules have hindered transactions. However, the announcement of this merger demonstrates confidence among the parties involved in obtaining the necessary regulatory clearances. Banc of California CEO Jared Wolff stated that regulators have been involved in the merger process from an early stage.
PacWest has been actively shedding assets and strengthening its balance sheet. Last month, it sold a $3.54 billion lender finance portfolio to asset manager Ares Management (ARES.N). While the turbulence in the regional banking sector has subsided and deposit outflows have been stemmed, concerns remain about the financial health of some lenders.
The merger between Banc of California and PacWest is a rare transaction in the market, as government-negotiated sales of failed banks have dominated recent months. Bank mergers have also faced delays or cancellations due to regulatory uncertainty. However, the merger announcement indicates confidence in obtaining regulatory approval. The merger will mark a significant opportunity for the combined bank, given the changing competitive landscape in California.
The U.S. banking sector is expected to undergo further consolidation, with predictions that only half of the current 4,700 banks may survive in the next decade. The global financial crisis of 2008 also led to a contraction in the banking sector, with a 14% decrease in the number of independent commercial banks operating in the U.S. from 2007 to 2013.
In conclusion, Banc of California and PacWest Bancorp have announced an all-stock merger to create a bank with $36 billion in assets. The merger will be financed through the sale of new shares to private equity firms. The combined bank will have a significant presence in California and will be led by Banc of California CEO Jared Wolff. The merger is expected to be completed by late 2023 or early 2024.
