What happened
Shares of PacWest Bancorp (PACW) are trading nearly 5% higher as of 10:40 a.m. ET today after having been up as much as 11% earlier this morning. The bank said in a regulatory filing that it had sold a lender finance loan portfolio with outstanding balances of more than $3.5 billion.
So what
Ever since the banking crisis back in March, PacWest has been one of the most pressured and volatile bank stocks in the sector, with its stock down around 67% this year. The bank had exposure to venture capital and tech deposits, which have declined at the bank and spooked investors.
Since then, the bank has been selling certain assets to shrink the balance sheet and boost its capital and liquidity ratios.
The loan portfolio is being sold to certain alternative strategy funds managed by Ares Management Corporation. The first tranche of the sale, which included $2.07 billion of the outstanding principal balance and more than $187 million of the unfunded commitments, closed on June 22. The remaining parts of the portfolio will close in the future.
For the sale of the first tranche, PacWest made about $2.01 billion. The bank also got $2.36 billion for the previously announced sale of its construction loans.
Now what
The sale of these loan portfolios will definitely improve PacWest's capital and liquidity ratios, and I think investors have been worried about PacWest's low tangible common equity ratio.
But these loan sales are also likely going to take away a good amount of the bank's earnings power, and the bank is still likely to see funding pressure like most of the industry in the second quarter. While these loan sales should improve the bank's ability to navigate the near-term environment, the future still remains murky. I wouldn't recommend buying anything more than a small, speculative position in the stock.
