Has the U.S. banking crisis subsided? Another bank to be acquired
The Bank of California is buying Westpac, the media reported Tuesday . Bank of California shares soared 22% on the news . Shares in Westpac closed down 27 percent before recovering losses in after-hours trading.
Bank of California said in a statement that the transaction is an all-stock deal and the combined bank would have about $36 billion in assets, less than Westpac’s total assets at the end of March. The two companies will carry the Bank of California name and the company’s chief executive, Jared Wolff, will lead management. The transaction is expected to close by the end of this year or early 2024.
The statement also said that after the transaction is completed, the combined company will have total loans of $25.3 billion, total deposits of $30.5 billion, and will have more than 70 branches in California. The combined bank expects to earn $1.65 to $1.80 per share next year.
Although smaller than Westpac, Bank of California faltered during the regional banking crisis earlier this year, plagued by deposit outflows and falling stock prices. The bank’s stock price was as high as $28 in early March, but it has since fallen all the way to the $2.50 level. In May, the bank said it was considering “strategic options”, including a sale or spin-off, and had approached potential investors.
“This transformational merger will create a robust, well-capitalized and liquid institution that provides exceptional service to more California businesses and communities,” said Wolff. “We are confident that both Bank of California and Westpac shareholders will benefit from the significant economics of the combined company.”
The Federal Reserve’s aggressive rate hikes of late have put a double strain on banks’ balance sheets : Higher rates have eroded the value of fixed-income assets such as loans and government bonds, while increasing the cost of bank funding and other liabilities. Therefore, in early March of this year, several major regional banks closed down, and it increased the difficulty and cost of absorbing deposits for banks in other regions, offsetting their gains from loans.
In addition, regional banks face another risk factor, the forthcoming new Basel rules that come into effect on July 27. The new rules will oversee banks with assets of more than $100 billion, the threshold for many of the strictest standards. As a result, many regional U.S. banks may have to comply with these new regulations. One of the key provisions is to require banks to hold more capital to deal with economic turmoil.