As the banking crisis ebbs, Banc of California announced its takeover of PacWest Bancorp in a deal valued at $400 million. The all-stock merger will create a combined bank with approximately $36.1 billion in assets and over 70 branches across California. According to the banks’ joint press release, “the combined company will have the strength and market position to support the banking needs of small and medium-size businesses in California and to capitalize on the opportunities created for stronger financial institutions in the wake of the recent banking industry turmoil.”
After a decade of historically low interest rates, the Federal Reserve’s aggressive rate hikes of 2022-2023 made cash more expensive. This strained banks as they needed liquidity to pay their depositors higher rates. Silicon Valley sold their Treasury Bonds, which had been locked in at lower rates, to free up cash – leading depositors to worry about the banks’ solvency, resulting in bank runs.
The contagion spread over the course of the spring to also-vulnerable Signature Bank and First Republic Bank. In terms of total assets, the three bank failures of 2023 outpaced the 25 banks that failed of 2008.
This uncertainty poured fuel on the long trend of bank consolidation, which was predicted to accelerate. Treasury Secretary Janet Yellen likewise stated in June, “There is motivation to see some consolidation and it wouldn’t surprise me to see some of that going forward.”
Consolidation is not without its critics, however. Senator Elizabeth Warren rebuked Yellen for such statements, stating, “Allowing additional bank consolidation would be a dereliction of your responsibilities, hurting American consumers and small businesses, betraying President Biden’s commitment to promoting competition in the economy, and threatening the stability of the financial system and the economy.”
Likewise, the Department of Justice’s assistant attorney general for antitrust, Jonathan Kanter, alarmed the banking industry when he declared that his department was broadening their scrutiny of banking consolidation and stood ready to block bank mergers to ensure competition. Despite this regulatory climate, Banc of California and PacWest plan to press on with their merger.
According to Matterhorn’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly announced transactions, Banc of California is advised by Skadden, Arps, Slate, Meagher & Flom LLP wwhilehiel PacWest Bancorp is advised by Sullivan & Cromwell LLP.
