The stock of PacWest (PACW) plunged on a report that it was about to be sold to smaller rival Banc of California (BANC), a deal that would end the independence of a regional lender that came under intense scrutiny following the downfall of Silicon Valley Bank.
The Wall Street Journal reported the two banks were in advanced talks and that a deal could be announced today. Both banks are scheduled to report their-second quarter results Tuesday.
The stock of Beverly Hills-based PacWest fell more than 27%, and the stock of Santa Ana-based Banc of California rose more than 10%.
PacWest was the nation’s 49th-largest bank as of March 31, with $44 billion in assets. Banc of California was the 135th largest as of that date, with $10 billion in assets.
Many regional banks stocks turned lower Tuesday on the PacWest report, offering a new reminder of the industry’s vulnerabilities.
The seizures of Silicon Valley Bank, Signature Bank and First Republic in the spring triggered outflows at PacWest and scores of other regional banks, creating panic across the financial system.
Those deposit outflows eventually eased at many banks during the second quarter, and investors responded by pushing stocks higher.
The KBW Nasdaq Regional Bank Index (^KRX), which tracks the performance of the smaller banks, rose 7.3% last week, its best weekly performance in more than a year.
But regional banks still face numerous challenges. Most attracted more deposits during the quarter by paying a lot more for them, cutting into a key measure of profitability. Many also revised down estimates of future revenue or profits.
PacWest, like many regional banks, spent much of the second quarter shrinking its balance sheet as it tried to keep its depositors.
In the first week of May, PacWest disclosed it was exploring “strategic asset sales” to improve its supply of cash on hand to meet potential depositor withdrawals. This included a $2.7 billion sale of its lender finance loan portfolio.
Last month PacWest also sold a $3.5 billion portfolio of consumer loans, mortgages and other assets to Ares Management.
The bank was expected by analysts to show in its results today that it did lose more deposits in the second quarter but that those outflows slowed. Its net interest income was also expected to shrink.
Its stock is now down roughly 67% year to date.
Banc of California traces its origins to 1941, when it began as the credit union for Rohr Aircraft.
It became the Pacific Trust Federal Credit Union in 1995, changed its charter to a federal savings bank and morphed into First PacTrust Bancorp Inc when it sold stock to the public in 2002.
A decade ago it changed its name to Banc of California. It currently has 28 full service bank branches in California extending from San Diego to Santa Barbara.
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