PacWest Recovers from 27% Stock Crash Following News of Merger with Banc of California

PacWest Bancorp (NASDAQ: PACW) stock plunged on Tuesday, July 25, in a flash crash that saw the bank lose 27%. However, PacWest has recovered its loss after news of a merger spread.

Yesterday, PACW fell 27.04% and closed at $7.69, according to data from MarketWatch. As of this writing, PACW is up 37.84% in premarket trading and is selling at $10.60. Nonetheless, PacWest stock has been on a losing streak, falling 22.71% over the last 5 days and 5.76% in the last month. Furthermore, PACW has lost more than 30% in the last 3 months, 66.4% year to date (YTD), and over 71% in the past year.

PacWest Stock Recovers on Merger Announcement

PacWest published a press release announcing a merger with Banc of California (NYSE: BANC). The merger will create a bank with $36 billion in combined assets and raise $400 million in equity following a due diligence process. The press release states that the bank and holding company will operate under Banc of California’s name and brand. Also, holders of PacWest stock will receive 0.6569 of a share of Banc of California’s common stock for each PacWest common stock share. The deal is backed by Centerbridge and Warburg Pincus, two private equity firms.

According to the announcement, Banc of California’s president and CEO Jared Wolff will retain his position at the new company. The company will also have John Eggemeyer, the current PacWest board independent lead director, as the board’s chairman. The board will comprise 12 directors: eight from Banc of California’s board, three from PacWest’s, and one from Warburg Pincus. Wolff said of the deal:

“Both institutions follow a client-first, relationship-based approach to serving our clients and communities while emphasizing prudent risk management. We believe that uniting the talent and expertise from both organizations, along with our cultural similarities and deep familiarity with each other’s business, will accelerate the execution and delivery of strong and growing franchise value for all stakeholders.”

PacWest Keeps Falling

In May, PacWest reported a 9.5% plunge in deposits for the week ending May 4 and saw its stock crash by 23%. The crash followed media reports that the bank was mulling peculiar steps to support its operations as the banking crash in the US continued at the time. Some of the options included openly discussing the company’s financial health hoping to boost consumer confidence, or cutting expenses by renegotiating contracts or laying off staff. At the time, PacWest also considered a merger or an acquisition to scale.

Earlier that month, PacWest stock fell 50% on May 4 after the company announced it would sell some assets as it tries to maximize liquidity. Nonetheless, PacWest president and CEO Paul Taylor said the company was able to record adjusted earnings of $89.4 million for the quarter. PacWest stock had crashed more than 86% YTD at the time, as economists feared a worse banking crisis than 2008 was looming. At the time, Signature Bank and Silicon Valley Bank had collapsed.