Report: Regional Lenders Banc of California and PacWest Negotiate Combination

Regional lenders Banc of California and PacWest Bancorp are reportedly in advanced negotiations to combine.

A deal could be announced as soon as Tuesday (July 25), when both banks are scheduled to report their results, The Wall Street Journal (WSJ) reported Tuesday, citing unnamed sources.

Banc of California and PacWest Bancorp did not immediately reply to PYMNTS’ request for comment.

A deal in which Banc of California bought PacWest could aid the regional bank sector in overcoming fears of financial soundness that were prominent earlier this year, after the failure of three lenders, according to the WSJ report.

Both Banc of California and PacWest saw drops in their deposits and their stock prices, but both have seen their stocks rebound and have passed through the turmoil in the sector in “relatively good health,” the report said.

PacWest subsidiary Pacific Western Bank bolstered its liquidity in late March after its deposits dipped 20% over the previous three months.

The bank said March 22 that it borrowed $3.7 billion from the Federal Home Loan Bank (FHLB), $10.5 billion from the Federal Reserve Discount Window and $2.1 billion from the Bank Term Funding Program. It also secured a new senior asset-backed financing facility from Atlas SP Partners.

That announcement came at a time when regional banks were coping with a wave of worries over bank runs after the failures earlier in March of Silvergate Capital, Silicon Valley Bank and Signature Bank.

About six weeks later, it was reported that PacWest Bancorp was considering a sale, a breakup or a capital raise as its stock price fell after the collapse of those three banks. The bank had lost about 85% of its value at that time, compared to the beginning of March, as investors turned away from regional bank stocks.

More recently, regional banks have been fighting higher interest rates that have driven them to pay more on customer funds as the value of their bonds diminishes. Further interest rate hikes and the threat of regulation won’t make things easier.

Amid these challenges, some regional banks across the United States are reportedly deciding to cut back on lending to preserve capital and improve margins.