By Regional-bank stocks experienced a significant surge on Wednesday following Banc of California Inc.’s proposed agreement to acquire PacWest Bancorp. Even after a two-day increase of 12%, the acquiring bank remains the top choice among analysts covering regional players in the U.S.
The merger agreement was announced after the market close on Tuesday, which already triggered an 11% jump in Banc of California’s stock. On Wednesday, PacWest Bancorp’s shares shot up by an impressive 27% to $9.76, surpassing the estimated takeout value of $9.60 per share that was initially announced with the deal. If approved by both banks’ shareholders, the merger will also involve a $400 million investment from Warburg Pincus LLC and Centerbridge Partners L.P.
Below is a breakdown of regional banks based on their ratings and stock-price targets.
Deal Coverage:
- PacWest’s Sale to Banc of California Provides Closure and Value for Shareholders: Analyst
- Stabilization in the Sector Drives Up Regional-Bank Stocks After PacWest Deal
Given that PacWest’s stock closed above the initial per-share deal valuation, it raises questions about whether its shareholders will vote to approve the agreement. In a client note on Wednesday, Wedbush analyst David Chiaverini described Banc of California’s offer as “fair, but not overwhelmingly attractive” and speculated that PacWest was likely considering a sale even before the mini banking crisis in March.
While Chiaverini predicts the deal’s approval by PacWest’s shareholders, he also mentioned the possibility of some dissent among a minority of shareholders, which could potentially open the door to the emergence of a third-party bid.
The Future of the Banking Industry
More broadly, recent developments in the banking industry suggest that we may be entering a period of increased consolidation among smaller banks. This can be attributed to various factors such as the merger deal, growing involvement of private-equity firms in lending businesses, and expected regulatory capital requirements for banks.
This trend echoes the transformative era of the 1990s when the banking landscape saw significant changes and acquisitions were rampant. This era paved the way for new investment opportunities, and we may be on the verge of another era of growth and change.
In terms of performance, the SPDR S&P Regional Banking exchange-traded fund (KRE) experienced a 5% rise on Wednesday. However, it is important to note that it is still down by 17% for the year 2023. On the other hand, the SPDR S&P 500 ETF Trust (SPY) made gains of 19% excluding dividends.
The KRE fund includes 139 different stocks, with 98 of them being covered by at least five analysts from brokerage firms. Out of these 98 banks, 45 have majority “buy” ratings from the analysts. Among these top-rated banks, we have identified the top 10 with the most potential for future growth over the next 12 months, based on consensus price targets.
To learn more about each bank, click on the tickers provided. Additionally, Tomi Kilgore has compiled a detailed guide on the wealth of information available for free on the quote page. You can find it here.
It is important to remember that any stock screen should only serve as a starting point for potential investments. If any of these stocks pique your interest, it is crucial to conduct your own research and form your own opinion before making any investment decisions.
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