US regional lenders PacWest and Banc of California agree merger

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PacWest, one of the hardest-hit lenders from the regional banking crisis, has agreed to merge with Banc of California in a sign that the fallout from the collapse of Silicon Valley Bank continues to reverberate across the industry.

The two California-based banks announced the deal on Tuesday, and said buyout groups Warburg Pincus and Centerbridge Partners would invest a combined $400mn in newly issued equity in the merged group.

“We are clearly better together. I believe this merger will be beneficial for all of our stakeholders,” Paul Taylor, PacWest’s chief executive, told analysts.

The combined market capitalisation of both banks at market close on Tuesday was just under $1.8bn. That is far less than the $6bn PacWest alone was worth at the beginning of 2022, another sign of the toll the Federal Reserve’s fight to tame the worst bout of inflation in decades has taken on PacWest and other regional lenders.

Both banks’ share prices jumped in after-hours trading.

The merger draws a line under months of uncertainty for Beverly Hills-based PacWest, which like SVB has close ties to the California tech community, had a large proportion of uninsured deposits and paper losses on its securities portfolio.

“If the alternative was a long period of distress, then this is the best alternative for PacWest,” said Dick Bove, a veteran bank analyst and chief strategist at boutique broker Odeon Capital.

Banc of California chief executive Jared Wolff, a former PacWest executive until 2019, will remain as CEO and president of the combined company, which will operate under the Banc of California name.

John Eggemeyer, PacWest’s founding chair and the bank’s lead independent director, will become chair of the board of directors. The statement did not say whether Taylor would stay on.

Investors in PacWest will receive 0.6569 of a share of Banc of California for each unit of stock they own.

At the close of the deal, expected in late 2023 or early 2024, PacWest’s shareholders will own 47 per cent of the combined company. Another 34 per cent will go to the former shareholders of Banc of California and the rest of equity is to be owned by Warburg and Centerbridge.

Santa Ana-based Banc of California had $6.87bn in deposits at the end of June and is smaller than PacWest, which had about $28.2bn at the end of March. Both banks have suffered deposit outflows this year.

The deal is the latest example of consolidation in the fragmented US banking industry following SVB’s collapse, with industry executives expecting more dealmaking among the more than 4,000 US banks.

In the past five months, JPMorgan Chase bought First Republic; First Citizens Bank acquired much of SVB following its collapse; and New York Community Bank purchased most of Signature Bank, another failed lender.

However, all of those deals were completed after the lenders being acquired were seized by US regulators, whereas the combination of the Californian banks announced on Tuesday was an entirely “open bank” transaction.