PacWest Bancorp in San Diego has sold off a significant portion of its troubled loans at a steep discount in an attempt to refocus on growth.
The $5.3 billion-asset company announced Wednesday that it sold 61 of its problem loans, totaling $323.6 million, for $200.6 million, or about 62 cents on the dollar. (The buyer was not identified.) PacWest expects to take a $41 million after-tax loss on the sale.
The loans included classified loans as well as those that had moved into nonaccrual status. Construction and commercial real estate loans made up the bulk of the loans sold. Based on fourth-quarter data, the sale will cause PacWest's nonaccrual loans to drop by 46%, to $129.6 million, making up 3.83% of total loans.
Matt Wagner, PacWest's chief executive, said in a press release that while the sale does not solve the company's credit problems, it provides an opportunity to concentrate more on growth.
"Our existing loan portfolio is subject to uncertainty and volatility given the fragile economic environment," Wagner said. "Without these problem loans, however … we believe PacWest is well positioned to grow."
Aaron James Deer, an analyst with Sandler O'Neill & Partners LP, said that despite the loss PacWest will take, it has enough capital to pursue a growth strategy.
He said PacWest would have a tangible common equity ratio of 8.2%, well above the 6% generally considered healthy for bank companies. PacWest has brokered two deals with the Federal Deposit Insurance Corp. for failed banks. Deer said he could see PacWest pursuing several similar deals.
"This really clears the way for them to really focus on their strategy," Deer said.