PacWest Bank, which endured significant hardships during this year’s banking crisis, has made the decision to merge with a smaller lender, Banc of California. This announcement marks a humbling end for PacWest, a once thriving Los Angeles bank that experienced a significant loss of clients amidst the chaos in the regional banking sector this year. As a result, the PacWest name will be retired, and the combined banks will operate under the Banc of California name. Taking the reins of the new entity will be Jared Wolff, the current CEO of Banc of California.
The weakened state of PacWest is evident through its decreased deposit amount in the combined bank, which now stands at $30.5 billion compared to the $34 billion it had at the beginning of the year. Despite this setback, the banks are confident that the merged company will possess sufficient strength and market position to cater to the banking needs of small and medium-sized businesses in California. To support this endeavor, private equity firms Centerbridge and Warburg Pincus have agreed to invest $400 million in the deal.
The collapse of Silicon Valley Bank in March brought attention to the struggles faced by regional banks, as they find it increasingly challenging to compete with larger institutions. Depositors are seeking the stability offered by big banks, causing a strain on midsize lenders. PacWest has been particularly affected, experiencing rapid shrinkage throughout the year as it sold off loans to competitors. Its stock price has plummeted to $10 per share, which is only a third of its peak in August.
This merger between PacWest and Banc of California breaks the norm in the mergers-and-acquisition world, where typically the larger company acquires the smaller one. Prior to the merger, Banc of California had 27 full-service branches while PacWest had double that amount. It remains uncertain whether the new entity will close some of these branches, although the announcement promises more than 70 branches in California.
Investors of PacWest expressed disappointment in the merger, causing its shares to fall by 27 percent during afternoon trading on Tuesday. In contrast, Banc of California’s shares rose by 11 percent.
Overall, this merger marks a significant turning point for PacWest Bank, as it seeks to regain stability and position itself to better serve the banking needs of small and medium-sized businesses in California.
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