The troubled PacWest Bancorp, which wobbled in the wake of the mid-March failure of Signature and Silicon Valley banks, has been sold to Banc of California, a smaller competitor, in a stock swap.

PacWest shareholders will receive 0.66 of a share of Banc of California for each of their PacWest shares.

As part of the deal, private equity firms Centerbridge Capital and Warburg Pincus have together invested $400 million in the combined entity and will own about 20 percent of it. The two also will hold warrants to buy more shares later.

The unified entity will be known as Banc of California and have about $36 billion in assets. The company will have roughly $25.3 billion in loans, $30.5 billion in deposits, and more than 70 branches in California. 

The bank plans to sell enough of those assets to pay off about $13 billion in debts.

After the two U.S. banks failed in mid-March, PacWest’s depositors and shareholders fled, fearing the bank had too few assets to cover its liabilities. Deposits stabilized after the bank retreated to its core products and paid down debt.

Since then, PacWest also has sold a packet of real estate loans to Kennedy Wilson Holdings, a real estate investment company, and offloaded a group of asset-backed loans to Ares Management.

“The bank’s prospects as a going concern had a high degree of uncertainty and M&A was the most practical course of action,” Brandon King, a Truist Securities analyst, wrote in a note to clients.

On 28 July, the Federal Deposit Insurance Corp. (FDIC) seized the Heartland Tri-State Bank, which is based in Elkhart, Kansas, and facilitated the bank’s purchase by Dream First Bank.

Heartland’s four branches reopened Monday as Dream First branches. All Heartland deposits are accessible to their owners through Dream First using their Heartland checks and borrowers should continue to make loan payments as usual, the FDIC said.

Heartland is the first bank to collapse since First Republic imploded in May in the second-largest bank failure in U.S. history. Heartland had about $139 million in assets and $130 million in deposits.

Dream First Bank has agreed to buy “essentially all” of Heartland Tri-State’s failed assets. The FDIC and Dream First will share Heartland’s losses and also any potential loan recoveries. 

The failures of four U.S. banks earlier this year have made depositors, investors, and shareholders leery of smaller banks and inspired legislators to consider new laws to protect depositors and stabilize the banking industry.

TREND FORECAST: The banking industry is in crisis.

It is sitting on $500 billion or more of low-yield bonds it bought during the COVID War and now is unable to sell at break-even prices, let alone a profit. Commercial real estate loans, of which small and regional banks hold more than 60 percent, are losing value, almost by the day. Regulators are telling them to brace for a rising tide of failed loans.

As we have said many times previously since March, more banks will merge and some will fail.

The result will be fewer banks, especially fewer local banks that know intimately their customers and markets. That will further decrease the number of loans being made, hampering business activity and economic growth.