PacWest Bancorp: Are The 9.6% Yielding Preferreds Still A Buy?

seekingalpha2023-09-12

PacWest's preferreds currently offer a 9.6% yield on cost.They're also still trading at a discount, this sits at around 20% or 80 cents on the dollar.The merger with Banc of California has materially ...

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David McNew/Getty Images NewsPacWest Bancorp's  beleaguered Series A 7.75% Series A fixed-rate reset perpetual preferred stock  seems to have closed out its turbulent chapter with its $1.9375 annual coupon now currently forming a 9.6% yield on cost on the back of a dramatic recovery from double dip lows set earlier this year. This was a period when it seemed they'd be the next California regional bank to collapse. I've owned the Series A through the volatility, but are they still a buy at around $20 per share?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4135":"资产管理与托管银行","BK4504":"桥水持仓","BANC":"BANC OF CALIFORNIA","LU1244550221.USD":"FRANKLIN GLOBAL MULTI-ASSET  INCOME \"A\" (USDHEDGED) INC (M)","LU0971096721.USD":"富达环球金融服务 A","LU2552382215.SGD":"WELLINGTON US BRAND POWER \"A\" (SGDHDG) ACC","PACW":"西太平洋合众银行","LU0211327993.USD":"TEMPLETON GLOBAL EQUITY INCOME \"A\" (USD) ACC","LU1267930490.SGD":"TEMPLETON GLOBAL EQUITY INCOME \"AS\" (SGD) INC A","LU1244550577.SGD":"FTIF - Franklin Global Multi-Asset Income A (Mdis) SGD-H1","IE0034235188.USD":"PINEBRIDGE GLOBAL FOCUS EQUITY \"A\" (USD) ACC","LU2552382058.USD":"WELLINGTON US BRAND POWER \"A\" (USD) ACC","ARES":"Ares Management L.P.","LU0149725797.USD":"汇丰美国股市经济规模基金","IE00BKVL7J92.USD":"Legg Mason ClearBridge - US Equity Sustainability Leaders A Acc USD","LU0211326839.USD":"TEMPLETON GLOBAL INCOME \"A\" (USD) INC","LU1668664300.SGD":"Blackrock World Financials A2 SGD-H","LU0882574139.USD":"富达环球消费行业基金A ACC","LU0256863811.USD":"ALLIANZ US EQUITY \"A\" INC","LU2552382132.HKD":"WELLINGTON US BRAND POWER \"A\" (HKD) ACC","LU1496350171.SGD":"FRANKLIN DIVERSIFIED BALANCED \"A\" (SGDHDG) ACC","LU1244550494.USD":"FRANKLIN GLOBAL MULTI-ASSET INCOME \"A\" (USDHEDGED) ACC","LU1496350502.SGD":"FRANKLIN DIVERSIFIED DYNAMIC \"A\" (SGDHDG) ACC","LU0211331839.USD":"FRANKLIN MUTUAL GLB DISCOVERY \"A\" (USD) ACC","LU0211328371.USD":"TEMPLETON GLOBAL EQUITY INCOME \"A\" (MDIS) (USD)   INC","IE00BLSP4239.USD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis USD Plus","IE00BLSP4452.SGD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis SGD-H Plus","IE00B775SV38.USD":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) ACC","BK4534":"瑞士信贷持仓","LU0417517546.SGD":"Allianz US Equity Cl AT Acc SGD","BK4533":"AQR资本管理(全球第二大对冲基金)","BK4211":"区域性银行","BK4566":"资本集团","JPM":"摩根大通","LU0208291251.USD":"FRANKLIN MUTUAL U.S. VALUE \"A\" (USD) INC","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","LU1162221912.USD":"FRANKLIN INCOME \"A\" (USD) ACC","BK4550":"红杉资本持仓","BK4588":"碎股","LU1261432733.SGD":"Fidelity World A-ACC-SGD","LU0070302665.USD":"FRANKLIN MUTUAL U.S. VALUE \"A\" (USD) ACC","LU0310799852.SGD":"FTIF - Templeton Global Equity Income A MDIS SGD","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","BK4589":"SVB概念","IE00BZ1G4Q59.USD":"LEGG MASON CLEARBRIDGE US EQUITY SUSTAINABILITY LEADER \"A\"(USD) INC (A)","LU1363072403.SGD":"Fidelity Global Financial Services A-ACC-SGD","LU0496365809.HKD":"TEMPLETON GLOBAL INCOME \"A\" (HKD) INC (Q)","BK4581":"高盛持仓","LU0211326755.USD":"TEMPLETON GLOBAL INCOME \"A\" (USD) ACC"},"translate_title":"PacWest Bancorp：收益率为9.6%的优先股还值得买入吗？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BANC":1,"PACWP":1,"PACW":1,"JPM":1,"ARES":1},"content_text":"PacWest's preferreds currently offer a 9.6% yield on cost.They're also still trading at a discount, this sits at around 20% or 80 cents on the dollar.The merger with Banc of California has materially derisked their investment profile.   David McNew/Getty Images NewsPacWest Bancorp's (NASDAQ:PACW) beleaguered Series A 7.75% Series A fixed-rate reset perpetual preferred stock (PACWP) seems to have closed out its turbulent chapter with its $1.9375 annual coupon now currently forming a 9.6% yield on cost on the back of a dramatic recovery from double dip lows set earlier this year. This was a period when it seemed they'd be the next California regional bank to collapse. I've owned the Series A through the volatility, but are they still a buy at around $20 per share? It depends. From a macroeconomic perspective, the current discount to their $25 par value will remain sticky on the back of the Fed's higher for longer mantra. The Fed funds rate currently sits at 5.25% to 5.50%, its highest level in 22 years. Seeking AlphaThe preferreds are still down 21% over the last year and are currently swapping hands for 80 cents on the dollar. This represents the upside that can still be captured by its holders, who previously faced a now-distant risk of PacWest being placed into receivership. Critically, the all-stock merger between PacWest and Banc of California (BANC) will see the consolidated entity take on the liability for the $10 million per quarter in payments to the Series A holders, as there is no change of ownership clause. The main change will be a name change to Banc of California once the merger is closed, as the PacWest name is being dropped in a deal that will see PacWest shareholders receive 0.6569 of a share of Banc of California for each share they own. The Preferreds Face Less Volatility Whilst the Series A are less of a clear buy now as they were back in March, they're currently still paying a near-double digit yield on cost and with a near $5 difference to their par value. Further, the merger with Banc of California represents a new dawn as it swaps out the uncertainty PacWest faced from a macroeconomic backdrop that could see further rate increases paired with a recession. Indeed, recent comments from Fed officials that not only is the key rate set to stay higher for longer, but there might be further hikes with current rates not restrictive enough, opening up the specter of further volatility. Critically, any further rate hike will keep the preferreds muted from a price perspective due to the duration effect, as the Series A preferreds are in many ways a halfway house between bond and equity. QuantumOnlineSanta Ana-based Banc of California is a $714 million regional bank that has remained profitable through the chaos and volatility of US banking in 2023. The bank has over 27 full-service community banking branches, concentrated in Southern California from San Diego to Santa Barbara and last reported fiscal 2023 second-quarter revenue of $75.66 million, an 11.5% decline over its year-ago period and a miss by $1.88 million on consensus estimates. Critically, net income was $17.9 million, around $0.31 per share, down from $0.34 per share in the year-ago period but a profit nonetheless. The bank last declared a quarterly cash dividend of $0.10 per share, in line with its prior payment and for a 3.2% annualized forward dividend yield. Data by YChartsThe New PacWest  This dividend should work out well for PacWest common shareholders who last received a peppercorn dividend of $0.01 per share, in line with PacWest's prior payout and for a 0.5% annualized forward dividend yield. PacWest shareholders will own 47% of the combined company with another 19% expected to be owned by investors in the $400 million equity capital raise, and the remaining 34% to be owned by Banc of California shareholders. The merger will see the consolidated bank become the third-largest bank headquartered in California, with $36.1 billion in assets. It will also have a common equity tier 1 ratio of 10%+ pro forma. I like that Banc of California realized $74.8 million in noninterest-bearing deposit inflows from new clients, up over 13% from its year-ago comp and roughly in line with first-quarter inflows. This provides a level of pushback against fears that the March collapse of Silicon Valley Bank and the subsequent banking collapses would materially undermine the confidence of depositors in the regional banking system, which faced a near-existential crisis in the first half of 2023. Banc of California 2023 Second Quarter Earnings Presentation PacWest has had to sell off a material amount of its assets from a $3.5 billion loan portfolio of high-quality senior secured asset-backed loans sold to Ares Management (ARES) and also sold off $1.8 billion of single-family residential loans to JPMorgan Chase (JPM). The merger closes off the chapter that saw the US regional banking system face the specter of a sustained flight of depositors to the systematically important banks, with the preferreds set to see the end of volatility that was previously pegged to the quarterly earnings of the previous PacWest. They're now a ticker to be held.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2366325056"}