Former U.S. regulator takes 12% stake in PacWest Bancorp
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From Times staff writer E. Scott Reckard:
Even amid the meltdown of home mortgage and construction loans in California, some banks are bound to be survivors. A former bank regulator thinks he has identified one.
A private equity firm headed by Eugene Ludwig, who oversaw U.S. national banks in the mid-1990s, today agreed to invest $100 million in PacWest Bancorp of San Diego in exchange for newly issued stock at $26 a share.
The infusion could make PacWest, formerly known as First Community Bancorp, strong enough to buy up deposits as other banks fail, essentially feeding on the carcasses that drop by the wayside.
The news triggered a rush of interest in PacWest’s shares, driving the price up $3.78, or nearly 17%, to $26.46. That is more than double the recent low of $12.75 on July 15.
The investment comes from CapGen Financial, headed by Ludwig, who from April 1993 to April 1998 was U.S. Comptroller of the Currency -- the chief regulator of national banks.
New York-based CapGen will wind up owning 12% of PacWest, whose Pacific Western Bank has 60 branches in Los Angeles, Orange, Riverside, San Diego and San Bernardino counties, $4.3 billion of loans and other assets and $3.2 billion in deposits.
Although PacWest was hurt in the first half of this year by soured commercial real estate and residential construction loans, the $747-million loss it recorded in the six months was mainly because of a big write-down of balance-sheet goodwill. Excluding that non-cash charge, first-half operating profit fell 71% to $15.1 million.
Despite the earnings slump, PacWest had maintained capital levels that exceeded regulators’ standards for being ‘well capitalized.’ That cushion will be further boosted by CapGen’s buy-in, although current shareholders will suffer some dilution of their stakes.
Once CapGen’s investment is complete, a measure of PacWest’s capital cushion relative to the risks it takes will be almost in the 90th percentile for the banking industry, noted Friedman, Billings Ramsey & Co. analyst James Abbott.
He called the investment ‘extremely positive’ for PacWest and its investors. First, he noted, the well-respected Ludwig agreed to pay 21% more than the stock’s average price last week for his PacWest stake. That is a vote of confidence that the bank ‘is undervalued relative to the intrinsic value of its deposit franchise,’ Abbott said in a note to clients.
More important, a beefed-up capital base puts PacWest ‘squarely in the driver’s seat to bid on distressed institutions, either before or ideally after FDIC assistance,’ he said.