PacWest Bancorp experienced a significant boost in its stock price on Monday, with a 21% jump, following the bank's announcement of the sale of a portfolio of 74 real estate construction loans totaling approximately $2.6 billion. This strategic move reflects PacWest's decision to refocus on its core community banking business.
The positive news from PacWest also had a ripple effect, triggering a broader rally in regional bank stocks, which have been volatile since the collapse of Silicon Valley Bank in March and the recent takeover of First Republic Bank by JPMorgan Chase & Co. in early May.
Further support for the sector came from Hovde Group, which initiated coverage of Zions Bancorp with a bullish outperform rating, indicating a recommendation to buy.
PacWest announced that it will sell the loans to a unit of Kennedy Wilson Holdings, a real estate investment company. As part of the deal, Kennedy Wilson or its designees will assume all future funding obligations for the acquired loans, amounting to approximately $2.7 billion. Additionally, PacWest has agreed to sell six additional real estate construction loans with a principal balance of about $363 million to Kennedy Wilson.
The completion of the loan sale is subject to satisfactory due diligence by Kennedy Wilson. To ensure the transaction's integrity, Kennedy Wilson will deposit $20 million into a third-party escrow account, which will be refundable.
The deal is expected to close in multiple stages during the second and third quarters. However, the regulatory filing states that there is no guarantee that the transaction will be completed partially or in its entirety.
PacWest's shares have experienced a 73% decline year-to-date, impacted by the turmoil in the banking sector. The bank reported a loss of 9.5% of its deposits during the week ending May 5 due to market volatility following JPMorgan's rescue of First Republic Bank.
Meanwhile, Hovde Group expressed confidence in Zions, attributing its deeply discounted valuation to misplaced fears. The analyst believes that investors are overlooking Zions' healthy profitability and operational efficiency. Hovde assigned Zions a price target of $40, representing a 44% increase from its current price.
Zions' stock showed a 6% increase in Monday afternoon trading. Other regional banks, such as Western Alliance Bancorp, KeyCorp, and Comerica Inc., also experienced stock price increases. The KBW Bank exchange-traded fund and the SPDR S&P Regional Banking ETF also saw gains.
In comparison, the S&P 500 index has gained 9% year-to-date.
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