PacWest Bank, which never fully recovered from its hammering during this year’s banking crisis, will be absorbed by a smaller lender, Banc of California, the banks announced on Tuesday.
The development was a humbling end for the 24-year-old PacWest, a once fast-growing Los Angeles bank whose clients fled amid turmoil for regional lenders this year. The PacWest name will be retired, and the combined banks will operate under the Banc of California name. Jared Wolff, the chief executive of Banc of California, will run the new entity.
In an indication of how weakened PacWest has become, the combined bank will have just $30.5 billion in deposits — considerably less than the $34 billion that PacWest had at the start of the year.
The banks said the combined company “will have the strength and market position to support the banking needs of small and medium-sized businesses in California.” The private equity firms Centerbridge and Warburg Pincus will invest $400 million in the deal, the banks said.
Regional banks have been under pressure since March, when Silicon Valley Bank’s collapse put a spotlight on midsize lenders. Many such banks say it has become increasingly difficult for them to compete with the country’s largest institutions as depositors prize the relative stability that big banks can offer.
PacWest has been one of the most imperiled regional banks. It has been rapidly shrinking this year, in part by selling off loans to competitors. Its stock was recently trading around $10 a share, one-third of its peak in August.
The transaction, which is subject to approval by regulators, turns the usual mergers-and-acquisition playbook on its head; typically it is the larger company that buys the smaller one. Banc of California had 27 full-service branches, while PacWest had double that. (The new entity could be planning to close some; Tuesday’s announcement promises “more than 70” branches in California.)
PacWest investors appeared disappointed by the development. Its shares cratered 27 percent in afternoon trading on Tuesday, after The Wall Street Journal reported that a deal was imminent.
Banc of California shares rose 11 percent.
Rob Copeland covers Wall Street and banking. He is the author of “The Fund: Ray Dalio, Bridgewater Associates and the Unraveling of a Wall Street Legend.” More about Rob Copeland
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