It was a turbulent ride for PacWest stock as it experienced a sudden 27% crash on July 25th, only to regain stability after the announcement of a merger with Banc of California. The shares initially plummeted from $10.33 to a meagre $7.50 in the late hours of trading, raising eyebrows among the financial and BTC communities and igniting speculations over the onset of the “next banking collapse”.
However, the subsequent recovery was not only swift but also backed by robust news: the merger with Banc of California, a smaller competitor. The merger seemed a strategic move to brace against tumultuous banking conditions foreseen for 2023. To sweeten the deal, two private-equity firms, Warburg Pincus and Centerbridge, pledged $400 million in equity, securing a solid 19% stake in the newly formed entity.
While this merger appears promising, viewed against a wider backdrop, the banking industry’s future remains uncertain. Recently, PacWest’s stock experienced more than a 60% plunge in May, fuelling fears of it following the ill-fated path of other US banks, such as Silicon Valley Bank, Signature Bank, and First Republic Bank, all of which collapsed earlier this year.
Our digital world, increasingly adopting decentralized financial systems like blockchain, continues to question the resilience of traditional banking models. This scenario, combined with the recent Federal Reserve’s Bank Term Funding Program (BTFP) hitting a new peak of over $100 billion in emergency bank bailout loans, offers enough reasons for stakeholders to remain cautious.
Nonetheless, not all is bleak. For one, the PacWest-Banc of California merger is anticipated to control a hefty $36 billion in assets, and over $25 billion in total loans. The combined market capitalization is poised at around $2 billion, with an equity reserve of $400 million, offering a significant buffer against potential market downturns.
Intriguingly, the latest upswing implies a deeper intertwinement between traditional finance and crypto markets. While few might view it as a desperate attempt to salvage reputation and muffle insolvency fears, others might see it as an opportunity for traditional banks to venture into the crypto realm. Either way, it underscores the growing symbiosis between the two spheres, potentially ushering a new era where such collaborative steps become the norm.
Source: Cointelegraph
