PacWest Stock Rebounds from Flash Crash Through Rescue Merger with Banc of Cali

On July 25, investors were alarmed as shares of PacWest bank experienced a sudden flash crash, plunging by 27%. The stock price dropped from $10.33 to $7.50 during late trading, triggering concerns within the financial and crypto communities about a potential banking collapse.

However, the panic was short-lived as share prices rapidly recovered during after-hours trading on the same day. At the time of writing, PacWest’s stock was priced at $10.10, indicating a remarkable rebound from the flash crash.

The recovery was attributed to a significant development for PacWest – a merger with its smaller rival, the Banc of California. The merger, announced on July 25, appears to be a strategic move by both banks to strengthen their positions following the banking industry’s recent turmoil in early 2023.

The merger was facilitated as an all-stock transaction, backed by private-equity firms Warburg Pincus and Centerbridge. These firms are providing $400 million in equity, obtaining a combined 19% stake in the newly merged business.

With the merger in effect, the combined assets of both banks are expected to total around $36 billion, along with over $25 billion in total loans. The resulting market capitalization of the merged entity stands at approximately $2 billion, combining PacWest’s market cap of around $1.2 billion with Banc of California’s roughly $764 million market cap, as reported by Reuters.

Under the terms of the merger, PacWest shareholders will receive 0.66 shares of Banc of California common stock. To fund the repayment of approximately $13 billion in wholesale borrowings, the combined company will be selling off assets.

This merger comes in the aftermath of a tumultuous period for PacWest, which saw its stock plummet by more than 60% in May, raising concerns about its stability. It prompted worries among investors that PacWest might be the next U.S. bank to fail, especially in the wake of the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank earlier in the year.

Adding to the backdrop of uncertainty in the banking sector, the Federal Reserve’s Bank Term Funding Program reached new highs of over $100 billion in late June, highlighting the ongoing challenges in the financial markets.

The merger between PacWest and Banc of California is seen as a strategic move to bolster their resilience amid a dynamic banking landscape, but the overall stability of the sector and the need for regulatory measures to address ongoing challenges remain critical concerns.

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