PacWest (NASDAQ:PACW) stock is up about 5% today after the company sold a $3.5 billion loan portfolio to Ares Capital (NASDAQ:ARCC). Shares of ARCC stock are also slightly up on the news.
The loan package “includes consumer loans, small business loans, timeshare, auto loans, and others.” The deal has also been described as a “first tranche,” meaning more purchases of PacWest paper by Ares are expected.
This deal improves PacWest’s liquidity by $2 billion. PACW stock is still down more than 60% so far this year. The stock opened today at $7.66 per share and a market capitalization of nearly $1 billion.
PACW Stock: Is the Crisis Over?
Investors have sought an all-clear on banks ever since Silicon Valley Bank collapsed in March. PacWest hopes to have 10% of its common equity in Tier 1 capital by the end of the year. That figure was at 9.22% in its first-quarter report. The bank had assets of $44 billion at the end of March.
In 2023, many regional banks have seen rising interest rates cut the value of the long-term loans they used to back deposits. Big depositors withdrew their money, forcing banks to take losses and reducing their capital. The crisis was most acute among banks serving wealthy clients. Many clients had much more cash on deposit than what was insured by the Federal Deposit Insurance Corporation (FDIC). PacWest is based in Beverly Hills, California.
Analysts are now looking for bargains in the regional banking sector, assuming the situation has stabilized. PACW stock recently gave back gains from a relief rally in May. But if interest rates have stabilized, shares could be a bargain. Analysts expect earnings of $1.68 per share next year. That would give it a forward price-to-earnings ratio of 4.6.
Ares Capital is a business development company and direct lender managed by Ares Management (NASDAQ:ARES), an alternative asset manager. Ares Management’s Executive Chairman is Tony Ressler, a co-founder of Apollo Global Management (NYSE:APO). According to Forbes, Ressler’s net worth is estimated at $6.9 billion.
What Happens Next?
What should investors make of this situation and today’s movement in PACW stock? Smart people coming in to scoop cheap paper from troubled regional banks could be the all-clear that investors need to start a rally in their shares.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
