Rescuing U.S. banks can be lucrative, after all

PacWest Bancorp

26/07/2023 18:03

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By John Foley
       NEW YORK, July 26 (Reuters Breakingviews) - PacWest, a
regional lender battered by investors, is merging with tiny Banc
of California at an apparent 20% discount and ceding management
control. The $2 bln deal sounds painful, but all sides should be
better off. Backers Warburg Pincus and Centerbridge stand to
benefit most.
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    CONTEXT NEWS
    PacWest Bancorp, a U.S. regional bank whose shares tumbled
when fears of lenders collapsing spread in March, agreed to
merge with smaller rival Banc of California, creating an
institution with $36 billion of combined assets.
    As part of the deal, the combined banks will pay back around
$13 billion of borrowings with an average interest rate of 5%,
by selling securities investments and liquidating some cash
holdings that have a combined interest yield of just over 4%.
    The new group will be run by Banc of California CEO Jared
Wolff, who earlier served as an executive at PacWest for 12
years. The smaller bank will also provide the finance director,
chief credit officer, chief operating officer and eight of the
12 board members. 
    Private equity firms Warburg Pincus and Centerbridge will
provide $400 million of funding in return for a 20% stake, some
of it in non-voting shares. They also receive warrants entitling
them to roughly 8% if the share price reaches $15.38, versus the
$12.30 reference price for their initial investment. 

 (Editing by Jeffrey Goldfarb and Sharon Lam)
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