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What’s not to like about the Banc of CA/PacWest transaction?


There’s a lot to like about the Banc of California/PacWest merger announced yesterday.

The transaction creates a combined $36 billion California commercial bank in a post SVB + Signature (which had a CA presence) + First Republic world, becoming the third largest bank headquartered in the state.

Both banks had been hit by the banking turmoil (PacWest much much harder), but combined, they create a clean, right-sized, well-capitalized bank that earns over >1% return on average assets (ROAA) and >12% return on average tangible common shareholders' equity (ROTCE) endorsed by two of the most savvy private equity firms, Warburg and Centerbridge. From the buyer’s perspective, there’s an attractive entry price (60% of tangible book value for PacWest), the benefit of fair value adjustments, merger costs savings, balance sheet reduction, and repositioning, as well as funding realignment: it’s a creative private sector resolution of the troubled PacWest bank.

More important than what it accomplishes, however, is what it represents. The transaction creates a roadmap for bank management teams and private capital that will likely be replicated in other geographies.

This roadmap is critical as more consolidation will and needs to happen with banks below the $50/75B billion asset size range to compete with the largest banks.

Image by Brandon Starr via Flickr.


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