Banking Crisis

PacWest shares crashed 27% before recovering on a rescue acquisition by the smaller Banc of California.

Shares in PacWest bank flash crashed by 27% on July 25 only to quickly recover in after-hours trading on the news it had merged with the Banc of California.

PacWest Bancorp stock slumped from $10.33 to $7.50 in late trading on July 25, sparking concern among the finance and crypto community, with some asking if “the next banking collapse” was starting.

Share prices recovered in after-hours trading on July 25 and were priced at $10.10 at the time of writing, according to Google Finance.

$44 billion bank PacWest Bancorp $PACW crashed over 25% today

Is the next banking collapse starting right now? pic.twitter.com/lOopnmCXvB

— Crypto Rover (@rovercrc) July 25, 2023

The rapid recovery was spurred by the July 25 merger of PacWest with its smaller rival, the Banc of California, with both banks seemingly looking to shore up following the banking industry turmoil in early 2023.

The all-stock merger was backed by two private-equity firms, Warburg Pincus and Centerbridge, which will provide $400 million in equity, giving them around a 19% stake in the combined business.

The banks combined are expected to have around $36 billion in assets and over $25 billion in total loans.

PacWest’s market capitalization is around $1.2 billion, while Banc of California’s was roughly $764 million making the combined market cap about $2 billion, Reuters reported.

Related: US regional bank shares sink despite Fed calling banking system ‘sound’

PacWest shareholders will get 0.66 of a share of Banc of California common stock. The combined company will repay around $13 billion in wholesale borrowings to be funded by the sale of assets.

In May, PacWest’s stock plunged more than 60%, sparking fears that it could be the next United States bank to fail following the collapses of Silicon Valley Bank, Signature Bank, and First Republic Bank earlier this year.

In late June, the Federal Reserve’s emergency bank bailout loan facility, the Bank Term Funding Program, reached new highs of over $100 billion.

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