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Kennedy-Wilson Holdings Inc(KW-N)
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Why Shares of PacWest Bancorp Are Rising Today

Motley Fool - Tue May 23, 2023

What happened

Shares of Los Angeles-based lender PacWest Bancorp(NASDAQ: PACW) traded nearly 13% higher as of 1:49 p.m. ET today, as the bank continued to rally after announcing a loan portfolio sale yesterday.

So what

In a regulatory filing, PacWest announced that it had entered into an agreement to sell a real estate construction loan portfolio with an outstanding balance of $2.6 billion to a subsidiary of Kennedy-Wilson Holdings(NYSE: KW).

Kennedy-Wilson will also be responsible for future funding obligations under the loan portfolio of roughly $2.7 billion. The company also agreed to purchase six other real estate construction loans with outstanding balances of $363 million.

Reuters reported that Kennedy-Wilson is buying the loans at a $200 million discount. PacWest, which has been one of the most pressured bank stocks since the banking crisis began, had previously said that it planned to sell noncore assets to further improve its liquidity position and capital ratios.

"It takes pressure off the bank from the funding side as they dispose off these loans -- they won't have to use either extensive deposits or borrowings to fund that part of the portfolio," D.A. Davidson managing director Gary Tenner said in a research note.

Now what

PacWest may pursue more asset sales, as the bank had previously said it was looking into selling a $2.7 billion lender finance portfolio. These sales should boost liquidity and capital and help PacWest navigate the difficult environment.

While I think there is a good chance PacWest is able to survive this difficult period, there is still a lot of uncertainty, and the stock may continue to be volatile.

Right now, I wouldn't recommend more than a small, speculative position, but keep monitoring the stock, as it may become more of a buy if and when conditions in the banking sector further stabilize.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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