PacWest shares rebound following deals to sell real estate loans

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PacWest Bancorp in Los Angeles saw its stock bounce back this week after it disclosed plans to sell nearly $3 billion of loans in an effort to bolster its balance sheet.

The $44 billion-asset parent company of Pacific Western Bank said in a regulatory filing Monday it agreed to sell a portfolio of real estate construction loans. It is selling 74 loans with about $2.6 billion in aggregate principal balance to a subsidiary of Kennedy-Wilson Holdings Inc., a real estate investment company. PacWest also plans to sell six more loans to Kennedy-Wilson totaling $363 million.

PacWest is unloading the initial 74 loans at a loss of $200 million, but the move will lower its risk-weighted assets, support capital levels and ease pressure on the bank's funding obligations. The company's stock surged nearly 30% over the course of trading Monday and Tuesday to $7.38 per share. It slipped about 1% in morning trading Wednesday, however.

D.A. Davidson analyst Gary Tenner said in a report the construction loan sale lowers the burden to support that portfolio with deposits or borrowings at a time when PacWest is grappling with heavy funding pressures following the failures of Silicon Valley Bank and Signature Bank in March. PacWest lost nearly $6 billion of deposits during the first quarter, when rattled customers moved their money elsewhere.

Kennedy-Wilson said in a separate filing that it will pay $2.4 billion for the first 74 loans and assume about $2.7 billion of future funding obligations connected to the acquired loans. The sales are expected to close in tranches over the second and third quarters.

The loan sales further PacWest's "progress in refocusing on its core, relationship-based community bank segment, and away from non-core, non-deposit national transactions," Tenner said.

PacWest said the loan sales are part of a previously announced plan to pursue strategic asset sales and cut costs. "You will continue to see, throughout the year, significant expense reductions," CEO Paul Taylor said on a call with analysts in late April.

The bank also said it is pursuing a sale of its $2.7 billion lender finance loan portfolio.

PacWest's stock has rebounded from record lows near $3 reached early this month, though it remains down about 70% since early March, when the bank failures ignited alarm across the industry and resulted in steep deposit losses at several regional banks, including PacWest. The collapse of First Republic Bank earlier this month amplified industry worries.  

PacWest has reported steady deposit growth in the current quarter. Its deposits totaled $28.9 billion as of April 24, up from $27.1 billion on March 20, after it suffered large deposit outflows during the banking crisis. Still, deposits were below the fourth-quarter 2022 level of $33.9 billion.

The bank reported a loss of $1.2 billion for the first quarter.