Banc of California Inc.’s proposed agreement to acquire PacWest Bancorp. helped send regional-bank stocks considerably higher on Wednesday. But even after a two-day increase of 12% for its shares, the acquiring bank remains the favorite name among analysts covering regional players in the U.S.
The merger agreement was announced after the market close on Tuesday, but the rumor mill had already sent Banc of California’s
BANC,
stock up by 11% that day. Then on Wednesday, shares of PacWest Bancorp
PACW,
shot up 27% to $9.76, which was above the estimated takeout value of $9.60 a share when the deal was announced. The merger deal, if approved by both banks’ shareholders, will also include a $400 million investment from Warburg Pincus LLC and Centerbridge Partners L.P.
A screen of regional banks by rating and stock-price target is below.
Deal coverage:
- PacWest’s sale to Banc of California ‘provides closure’ and is a win for shareholders: analyst
- Regional-bank stocks move up after PacWest deal suggests stabilization in sector
With PacWest closing above the initial per-share deal valuation, it is fair to wonder whether or not its shareholders will vote to approve the agreement. In a note to clients on Wednesday, Wedbush analyst David Chiaverini called Banc of California’s offer “fair, but not overwhelmingly attractive,” and wrote that PacWest was “a likely seller before the mini banking crisis occurred in March.”
While Chiaverini went on to predict the deal’s approval by PacWest’s shareholders, he added that he “wouldn’t be surprised if there were some dissent among a minority of shareholders [which could] possibly open the door to the potential emergence of a third-party bid.”
More broadly, Odeon Capital analyst Dick Bove wrote to clients on Wednesday that the merger deal, along with increasing involvement of private-equity firms in lending businesses, the expected enhancement of regulatory capital requirements for banks and other factors could lead to more consolidation among smaller banks.
He went on to write that we might be entering a period for the banking industry similar to the 1990s, “when rules were being changed and acquisitions were rampant,” which “created new investment opportunities.”
The SPDR S&P Regional Banking exchange-traded fund
KRE,
rose 5% on Wednesday but was still down 17% for 2023, while the SPDR S&P 500 ETF Trust
SPY,
was up 19%, both excluding dividends.
KRE holds 139 stocks, with 98 covered by at least five analysts working for brokerage firms polled by FactSet. Out of those 98 banks, 45 have majority “buy” ratings among the analysts. Among those 45, here are the 10 with the most upside potential over the next 12 months, implied by consensus price targets:
| Bank | Ticker | City | Total assets ($mil) | July 26 price change | Share buy ratings | July 26 closing price | Consensus price target | Implied 12-month upside potential |
| Banc of California Inc. |
BANC, |
Santa Ana, Calif. | $9,370 | 1% | 71% | $14.71 | $18.58 | 26% |
| Enterprise Financial Services Corp. |
EFSC, |
Clayton, Mo. | $13,871 | 2% | 80% | $41.75 | $49.25 | 18% |
| First Merchants Corp. |
FRME, |
Muncie, Ind. | $17,968 | 4% | 100% | $32.38 | $37.33 | 15% |
| Amerant Bancorp Inc. Class A |
AMTB, |
Coral Gables, Fla. | $9,520 | 3% | 60% | $20.26 | $23.30 | 15% |
| Old Second Bancorp Inc. |
OSBC, |
Aurora, Ill. | $5,884 | 3% | 100% | $16.15 | $18.50 | 15% |
| F.N.B. Corp. |
FNB, |
Pittsburgh | $44,778 | 3% | 75% | $12.91 | $14.50 | 12% |
| Columbia Banking System Inc. |
COLB, |
Tacoma, Wash. | $53,592 | 4% | 55% | $22.63 | $25.32 | 12% |
| Wintrust Financial Corp. |
WTFC, |
Rosemont, Ill. | $54,286 | 3% | 92% | $86.05 | $95.33 | 11% |
| Synovus Financial Corp. |
SNV, |
Columbus, Ga. | $60,656 | 6% | 75% | $34.06 | $37.73 | 11% |
| Home BancShares Inc. |
HOMB, |
Conway, Ark. | $22,126 | 5% | 57% | $24.09 | $26.67 | 11% |
| Source: FactSet | ||||||||
Click on the tickers for more about each bank.
Any stock screen can only be a starting point when considering whether or not to invest. If you see any stocks of interest here, you should do your own research to form your own opinion.
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