To The Moon

To strengthen balance sheets and reinforce financial positions, $Banc of California(BANC)$ and $PacWest(PACW)$ have decided to combine their operations in an all-stock merger. $PacWest(PACW)$ jumped 30% before the bell.

1. What happened to regional bank shares after the MA news came out?

To save small banks from bankruptcy, $UBS Group AG(UBS)$ and $JPMorgan Chase(JPM)$ took over Credit Suisse and First Republic.

JP Morgan Chase agreed to pay $10.6 billion to the Federal Insurance Deposit Corp (FDIC) for the acquisition of First Republic

UBS absorbed Credit Suisse in $3.24 billion all stock deal brokered by the government to prevent the latter embattled bank from failing.

As the takeover prices were way lower than their former value, the deal didn’t bring good news to the acquirees, with both of them falling below $1 on the news.

2. Merger news followed the mixed earnings

Regarding the earnings reports, both PacWest and Banc of California released their quarterly reports after the market close on Tuesday and hosted their respective earnings calls on Wednesday.

PacWest reported adjusted earnings of 22 cents per share, beating FactSet expectations of 18 cents per share.

However, revenues were $57.99 million, missing Bloomberg’s estimates of $233.50 million.

Adjusted EPS: 22 cents vs. 18 cents

Revenue: $57.99 mln vs. $233.50 mln

Banc of California's adjusted earnings fell 28% to 32 cents per share but managed to beat expectations of 30 cents per share.

Revenue also fell by 11.8% to $75.65 million, missing forecasts of a 9.8% decline.

Adjusted EPS: 32 cents vs. 30 cents

Revenue: $75.65 mln vs. $76.73 mln

3. The merger of BANC and PACW means a new start for regional banks?

Despite largely positive earnings results this month, the aftermath of the crisis is still lingering.

According to the terms of the deal, $PacWest(PACW)$ stockholders will receive 0.6569 shares of $Banc of California(BANC)$ for each common stock of PacWest. The agreement has been unanimously approved by the boards of both companies.

The merger will result in a combined bank with significant assets, total loans, and deposits, with over 70 branches in California. Banc of California anticipates that the deal will add at least 20% to BANC's estimated earnings per share in 2024.

Back in May, Yellen says “more bank mergers necessary.”

Yellen warns of 'constitutional crisis' if Congress fails to act on debt | Reuters

Consolidation is a potential solution for smaller banks to achieve greater scale and economic viability. By merging with each other, community and regional banks can compete better with larger banks and remain sustainable.