Rivals could capitalize on woes at two California banks

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One bank’s setbacks can be another’s opportunity. In this case, make that two banks in Irvine, Calif.

Problems of various stripes in recent months at Opus Bank and Banc of California have sparked speculation among competitors in, and observers of, the Southern California banking market that employees and customers of those banks could be on the move.

Rivals are “definitely looking” at bankers at Opus and Banc of California in particular because of their need to rein in expansion, said Tim Coffey, vice president of West Coast research at FIG Partners. Small and midsize banks in the market could be big beneficiaries.

“Any community bank would be lucky to have bankers like that,” Coffey said.

Several competitors — such as the $4 billion-asset First Foundation, the $4 billion-asset Pacific Premier and the $21 billion asset PacWest — could seek to hire some of Opus’ bankers as its monthslong downsizing continues, said Chris York, a senior research analyst at JMP.

Pacific Premier’s chairman, Steve Gardner, said that he has spoken with business clients of some of the banks that have been in the spotlight lately and that those customers are on guard.

“They’re considering moving because they’re concerned about what they’ve seen transpire in the press at least with a couple of those organizations,” Gardner said.

While Gardner didn’t explicitly say Pacific Premier might take advantage of the disruption to snag new talent, he said the bank is “regularly recruiting for good, quality bankers.”

Voicemails left for a representative of Opus were not returned.

A spokesman for the Banc of California, Joe Hixson, did not directly address speculation about customer or employee defections but sought to make the case that the bank can weather the storm.

Banc of California “is appropriately capitalized and, as demonstrated by the recent decline in classified assets, has proactively enhanced its overall credit quality,” he wrote in an email.
Opus and Banc of California could not adequately handle the rapid growth they experienced, the analyst Coffey said.

“They probably got a little too big too quickly,” Coffey said. “They experienced growing pains to an extent that they didn’t expect but for different reasons.”

The $11 billion-asset Banc of California received harsh criticism last year that included claims of improper dealings involving directors and senior executives. PL Capital, an activist investor, also took issue with alleged conflicts of interest tied to Banc of California’s decision to spend $100 million for the naming rights to a soccer stadium.

In mid-October, a blogger using the alias Aurelius posted a report tying CEO Steven Sugarman to a Los Angeles financier who was charged last year with defrauding investors.

Sugarman left the company after the Securities and Exchange Commission launched a probe into the accuracy of public disclosures it made in responding to the blogger’s claims. The company has pledged to enact a number of corporate reforms.

Meanwhile, the $7.9 billion-asset Opus Bank charged off $39 million in loans last year, some of which were technology-related. It also announced plans to scale down its workforce by 10%, and those efforts were still in motion as of early this year. Moreover, Opus reported a loss of $3 million in the third quarter following additions to its loan-loss reserves. CEO Michael Allison stepped down at the beginning of 2017.

“The obvious disruption is that the bankers, employees that work for the company … to the degree that they can’t be moved to other parts of the business where the bank is open and available … those folks will come onto the market and be available,” said Tim O’Brien, an analyst for Sandler O’Neill who covers Opus.

Opus will tone down its business in other areas like health care and tech lending, and it might “back away from” other businesses, O’Brien said.

Amid the potential disruption is the speculation that the $21 billion-asset PacWest Bancorp in Los Angeles might be in the market to buy Opus.

In a research note, York said that because PacWest has had success buying firms in the past and given “an improving operating and regulatory background for regional banks,” he thinks some of the bank’s capital could go toward an acquisition. Among four suggested players is Opus. York also notes that the two banks have previous worked together — in 2012, PacWest sold Opus 10 of its branches.

PacWest declined to comment for this story.

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