(Reuters) – Shares of Bacoist Bancorp jumped on Monday after the troubled regional lender announced that it had agreed to sell construction mortgage loans worth $2.6 billion at a discount in a bid to improve its balance sheet.
Backwest stock rose nearly 20% on the deal, giving the Los Angeles-based bank a breathing space to deal with the deposit flight that followed the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank.
PacWest shares have rebounded along with other regional banks in the past two weeks as investors increasingly believe the worst of the crisis is over and many lenders have been fundamentally sound.
The bank’s stock has more than doubled from a record low in early May, although its market value has fallen by nearly three-quarters since the crisis began in March.
“The market is overreactive and underresponsive. And I think the markets have overreacted to the perceived lack of quality of regional banks,” said George Young, portfolio manager at Villere & Co. in New Orleans.
“There has been some concern that the market is giving inappropriate measures of the health of these banks. Banks are generally healthy,” Young added.
PacWest’s share gain helped boost trading in other regional lenders on Monday, with the KBW Regional Banking Index (.KRX) adding 3%. Western Alliance Bancorp (WAL.N) was up 10.3%, Comerica Inc (CMA.N) was up 3.5%, and Zions Bancorporation (ZION.O) was up about 5%.
Sale of real estate assets
PacWest sold 74 real estate construction loans with an outstanding balance of $2.6 billion to real estate firm Kennedy-Wilson Holdings Inc (KW.N) for $2.4 billion — a $200 million discount, a regulatory filing showed Monday.
Kennedy Wilson said it will also assume $2.7 billion in potential financing obligations associated with the loans and, subject to PacWest-secured approvals, take on six additional construction real estate loans with a balance of approximately $363 million.
PacWest will have to pay Kennedy-Wilson a fee equal to 0.15% of the total loan obligation, according to the filing.
The loans carry variable interest rates that currently average 8.4%, which is much higher than PacWest’s portfolio of fixed-rate loans, which were put together when interest rates were much lower. Floating rates allowed PacWest to sell construction real estate loans at a small discount that reflected a decline in the value of the underlying real estate asset, rather than a rise in interest rates.
“We believe the decline in risk-weighted assets should offset the loss (from discounting loans), which should lead to a modest improvement in regulatory capital ratios,” Wedbush analysts wrote in a note.
The deal is expected to close in several tranches during the second quarter and the first part of the third quarter, Baquist said.
PacWest also said it is exploring selling its $2.7 billion portfolio of financial loans, which it expects to complete by next month.
said Gary Tenner, managing director at DA Davidson & Co.
PacWest indicated in May that it was in talks with potential partners and investors about strategic options. Earlier this month, he said he had provided more guarantees to the US Federal Reserve to boost the bank’s liquidity.
PacWest raised $1.4 billion in March from investment firm Atlas Partners SP by borrowing against some of its assets, but that deal was not enough to meet all of the bank’s liquidity needs.
(This story has been restated to change the market value decline to “nearly” three-quarters from “more than” three-quarters in paragraph 4)
Reporting by Mahnaz Yasmin in Bengaluru. Editing by Krishna Chandra Elori
Our standards: Thomson Reuters Trust Principles.
“Web maven. Infuriatingly humble beer geek. Bacon fanatic. Typical creator. Music expert.”
Home prices will fall, commercial real estate will collapse
Asia markets mixed ahead of US vote on debt ceiling agreement; Hong Kong braced for new lows
Report: Disney’s cancellation of billion-dollar college campus in Florida could sour neighboring developers who rely on it to build their own