PacWest Bancorp in Los Angeles is getting out of general cash flow lending.
The $25 billion-asset company said in a press release Monday that it will sell about $1.5 billion in health care, technology and other cash flow loans to Morgan Stanley Bank for a pretax gain of roughly $13 million.
PacWest said it also plans to sell a portfolio of performing technology cash flow loans with an aggregate principal balance of $152 million in a separate transaction.
The sales are expected to close by the end of this year.
The company said it plans to keep expanding is security cash flow business.
PacWest said it will consider ways to redeploy the liquidity from the loan sale, adding that it will likely reduce its balance of wholesale deposits and potentially repurchase more of its common stock.
The sale “allows management to focus attention and resources on profitably growing our other businesses,” Matt Wagner, PacWest’s president and CEO, said in the release. He added that the move should lower the company’s credit risk profile, decrease earnings volatility and significantly mitigate headwinds from incrementally shrinking the cash flow portfolio.
PacWest will retain nine non-security-related cash flow lending relationships with a total carrying value of $100 million. About $39 million of the loans are classified; PacWest has established reserves that represent about half of the loans’ aggregate legal balance.