Endless banking crisis: PacWest faces its biggest embarrassment yet

PacWest Bancorp’s last resort: to beg its youngest son? Yes, because the company never recovered from its crisis. After a massive outflow of depositors, things got so bad that it agreed to a merger with a smaller lender, Banc of California.

PacWest was about to sink for good

“10% of banks have unrecorded losses greater than those of the SBV,” argue the economists who authored the study entitled “Monetary Tightenings an U.S. Bank Fragility in 2023: Market-to-Market Losses and Uninsured Depositor Runs?”. This document highlighted the vulnerability of some 200 banks operating in the USA.

Apart from Silicon Valley, Silvergate and Signature Bank, others such as PacWest Bancorp were simply on the brink of collapse.

This isn't a shitcoin

It's $44 billion bank PacWest Bancorp $PACW which crashed over 25% today pic.twitter.com/0KiqcMVGAA

— Bitcoin Magazine (@BitcoinMagazine) July 25, 2023

The conditions seem set to accept a merger, in spite of itself. Ironically, PacWest, which was valued at $44 billion, had to accept an offer from a smaller lender, Banc of California.

Worse still, the PacWest name will be withdrawn and the merged institution’s CEO will be Jared Wolf, CEO of Banc of California.

Total dissolution of PacWest avoided

The crisis in the banking sector has not spared PacWest Bancorp. The above-mentioned 25% fall in its shares is just the tip of the iceberg.

Fortunately, this merger will create a bank with $36 billion in assets. It will also have $25.3 billion in loans, to be deployed in some 70 California branches.

The immediate consequence: Pacific Western Bank shares soared by 35%. Banc of California shares followed suit, up 9%.

“Both banks are in the same geographic areas and focus on commercial assets, which could be considered a marriage of convenience,” argues Timothy Coffey, analyst at Janney Montgomery Scott.

And this is perfectly in line with the solution proposed by Janet Yellen last May. At the time, she proposed merging medium-sized US banks to avoid bank failures.

Let’s hope the two banks combined can deliver on their promise to establish an entity that “will have the strength and market position to meet the banking needs of California’s small and medium-sized businesses”.

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