Key Points
- PacWest Bancorp shares have recovered after Bank of California struck a rescue merger deal.
- The bank’s shares had crashed 27% in hours, slumping from $10.33 to $7.50 on July 25
PacWest Bancorp has been saved from becoming the latest bank to crash in a banking system meltdown witnessed in March 2023. On July 25, its shares had fallen by as much as 25% but have now recovered to almost the initial figures at the start of the flash crash
PacWest Bancorp merges with Banc of California
PacWest Bancorp and the Banc of California have had a stock merger backed by two private-equity firms, Warburg Pincus and Centerbridge. The all-stock merger has come with the provision of $400 million in equity from the firms, which gives them a 19% stake in the combined business.
As a result, the combined PacWest Bancorp shares have returned to ‘normal’ levels. The combined bank’s business is expected to have around $36 billion in assets and over $25 billion in liabilities/ loans. As a result of the merger, PacWest shareholders will get 0.66 of a share of the Banc of California common stock.
The combined bank business will repay around $13 billion in wholesale borrowings to be funded by the sale of its assets. PacWest’s shares had also dipped by over 60% in May, which made it seem like the next bank to fail in the US after Silicon Valley Bank, Signature, and First Republic Bank.
However, the Federal Reserve saved it after giving a Bank Term Funding Program in June. While it was expected only to be utilized at 250 million, the demand for the funds grew to 120+ billion, cushioning banks in the country from further fails until PacWest got a flash crash on Tuesday.
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