Though it already has a fat tangible common equity ratio, PacWest Bancorp in San Diego is piling on even more capital with an eye toward buying failed institutions.
The $4.5 billion-asset company announced late Tuesday that several institutional investors have agreed to buy $50 million of common stock.
Should the investors exercise their warrants, the amount PacWest raises could double later.
The initial $50 million would boost the company's tangible common equity ratio to 10.6%, said Edward Timmons, an analyst at Sterne, Agee & Leach Inc. The ratio had been an enviable 9.7% at the end of the second quarter — about double the level that analysts typically view as a necessary minimum.
"They are near the top of the industry for capital, certainly very high on the list for California banks," Timmons said.
PacWest has been vocal about wanting to buy failures, and it snagged one in November, taking on $450.1 million in deposits and $51.8 million of assets from Security Pacific Bank in Los Angeles.
Timmons said he expects the company to pick up a few more banks from receivership in the next 12 months, with at least one deal likely by yearend.
"They certainly have the capacity to do it, and I see them being one of the chief consolidators in that market," he said.
Though PacWest's loan trouble has been on the rise, "the capital raise clearly wasn't needed to absorb credit losses," Timmons said. "I see this raise as exclusively opportunistic."
The company did not immediately return a call seeking comment but said in a press release that the fresh capital would be used for strategic growth opportunities and general corporate purposes.
"While our capital levels were very healthy prior to the transaction, we continue to believe that additional capital in the current environment will be particularly valuable as new opportunities arise," said Matt Wagner, PacWest's chief executive.
PacWest lost $5.7 million in the second quarter, as nonperforming assets rose to $203.5 million, or 5.15% of total assets. Nonperformers had nearly doubled since yearend.
However, Timmons said the company could withstand the stress, given its existing capital and preprovision earnings power.
"Clearly, they are going to have elevated credit costs for several more quarters at least," he said. "But they had plenty of capital before this raise to get through even the most aggressive scenario."
PacWest said the common stock would be sold to the investors at Monday's closing price of $18.36 per share. The warrants have an exercise price of $20.20 per share, a 10% premium to Monday's closing price.
Its stock closed Wednesday at $18.32, down 1.7%.
