On July 25, PacWest bank experienced a sudden and alarming flash crash, with its shares plummeting by 27%.
The stock value dropped from $10.33 to $7.50 during late trading, raising concerns among investors and the finance community. Some even feared it could mark the beginning of a banking collapse.
However, the panic was short-lived as share prices quickly rebounded during after-hours trading on the same day.
As of the time of writing, the stock had recovered and was priced at $10.10, as reported by Google Finance.
The reason behind the rapid recovery was the merger announcement between PacWest and the Banc of California on July 25.
Both banks appeared to be seeking stability in response to the turmoil that had affected the banking industry earlier in 2023.
The merger was an all-stock deal and received the backing of two private-equity firms, Warburg Pincus and Centerbridge.
These firms injected $400 million in equity, securing themselves a 19% stake in the newly combined business.
The merged entity is expected to hold assets worth approximately $36 billion, along with over $25 billion in total loans.
The market capitalization of PacWest stood at around $1.2 billion, while Banc of California’s was roughly $764 million.
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Following the merger, the combined market capitalization reached about $2 billion, as per Reuters.
Shareholders of PacWest will receive 0.66 shares of Banc of California common stock for each of their PacWest shares.
Additionally, the merged company plans to repay approximately $13 billion in wholesale borrowings, with the funds obtained from the sale of assets.
PacWest had faced a significant setback in May, witnessing a more than 60% plunge in its stock value.
This decline raised worries that the bank might be at risk of becoming the next one to fail in the United States.
Earlier in the year, Silicon Valley Bank, Signature Bank, and First Republic Bank had already collapsed.
Furthermore, in late June, the Federal Reserve’s emergency bank bailout loan facility, the Bank Term Funding Program, surpassed $100 billion, reflecting the severity of the challenges faced by the banking sector.
With the merger now underway and the backing of private-equity firms, PacWest and Banc of California aimed to fortify their positions and weather the storm that had shaken the financial landscape.
Investors and the market were keeping a close eye on their progress as they sought stability in an industry that had faced significant uncertainties and shocks.
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