Bank-turnaround specialist to buy Pacific Capital Bancorp

A group led by Gerald J. Ford, a billionaire bank-turnaround specialist, agreed Thursday to save Pacific Capital Bancorp from collapse by investing $500 million for a 91% stake in the Santa Barbara-based operator of five Central California community banks.

But Pacific Capital’s stock plunged nearly 50% after the announcement of the deal, which would allow Ford’s group to buy its shares at a deep discount to their market value.

The investment is contingent on obtaining substantial financial concessions from the bank’s debt holders -- who would lose everything if the bank failed -- and from the federal government, which in November 2008 bought $180.6 million in Pacific Capital preferred stock and warrants under the Troubled Asset Relief Program.

A bank spokesman said discussions had been held with the Treasury Department, which Ford is asking to accept common stock amounting to 20 cents on the dollar for its stake. A Treasury spokeswoman declined to comment.

The proposed deal calls for Ford’s group to buy new Pacific Capital common stock for 20 cents a share, as well as preferred stock that could be converted into common shares at that price. It would leave the Treasury owning 7% of the bank and existing holders of common stock just 2%.

If the deal is completed, current shareholders would get the opportunity to pay the same price -- 20 cents a share -- for new stock amounting to as much as a 20% stake in the company.

Shares of Pacific Capital, after sinking below $1 late last year, had climbed sharply in recent weeks, closing last Friday at $5.11.

On Thursday the shares tumbled $1.92, or 47%, to $2.19.

Badly burned on home-building loans in the Central Valley and Nevada, Pacific Capital also reported a $79.9-million first-quarter loss Thursday after losing $431.3 million in 2009. It has been out of compliance for more than a year with regulators’ orders to raise hundreds of millions of dollars in new capital. Its chairman, Edward Birch, said the Ford deal was its best option.

Ford, who began investing in rural Texas banks in the 1970s, could not be reached for comment.

In the 1990s, in the wake of the savings-and-loan crisis, he led a group that combined the California thrifts First Nationwide Bank, Glendale Federal Savings and California Federal Bank into Golden State Bancorp.

His group, which included billionaire investor Ronald Perelman, sold Golden State to Citigroup Inc. in 2002 for $5.8 billion.