Pacific Capital Bancorp, owner of First Bank of San Luis Obispo, is expected to receive a $500 million capital infusion from a Texas-based private equity fund, which is designed to give the company the boost it needs to retain its Central Coast franchise.
Under the agreement with SB Acquisition Co. LLC, a subsidiary of Ford Financial Fund, Ford will acquire 91 percent of the Santa Barbara-based company’s common stock.
After the investment, the U.S. Treasury Department, which has given the company $188 million as part of the Troubled Asset Relief Program’s Capital Purchase Program, would own about 7 percent. Shareholders would own about 2 percent.
The deal is in the best interests of the company and its stakeholders, said George Leis, president and chief executive officer of Pacific Capital.It could not be learned whether the deal will impact local branches or employees. A call to a Pacific Capital spokeswoman was not returned Thursday.
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Who’s behind the deal
Leading the private equity deal is Ford Financial Fund’s managing member Gerald J. Ford. The Texas billionaire is former chairman and CEO of Golden State Bancorp Inc. and California Federal Bank. Carl B. Webb, senior principal at Ford Financial, was formerly president, chief operating officer and a director of Golden State Bancorp and California Federal Bank.
Both will sit on the company’s board of directors after the investment closes, Pacific Capital Bancorp officials said.
Ford is known in the financial industry for making his fortune purchasing distressed lenders during the savings and loan crisis in the 1980s and 1990s, according to a report in Bloomberg/Businessweek. The news organization said Ford “led investors who transformed Golden State Bancorp Inc. into the second-largest U.S. savings and loan.” In 2002, Ford sold it to Citigroup for $5.3 billion.
“We are pleased to have this opportunity to invest in a financial services franchise with such deep roots in attractive markets in California,” said Ford in a prepared statement. “We look forward to helping strengthen this institution for the benefit of all its stakeholders.”
Bank under scrutiny
The move to inject fresh capital into Pacific Capital Bancorp comes at a critical time for the company, which had been weakened by the tough economy and a deterioration of residential and commercial real estate markets.
Pacific Capital Bancorp recorded a net loss in the first quarter of this year of nearly $80 million and has been under the scrutiny of federal regulators.
Last year, the company entered into a memorandum of understanding with the Office of the Comptroller of the Currency – the government agency that regulates nationally chartered banks – to ensure that it maintained certain ratios for capital and managed the risk in its real estate portfolios.
As of March 31, the bank reported that it was not able to comply with the minimum capital ratios it had agreed to with the OCC.
The company, which had $1.41 billion in cash and other liquid assets as of March 31, has made a series of moves in the past year to preserve capital and weather the recession, including selling its tax division to a private equity firm for $10 million earlier this year. As well, the company announced plans last year to cut about 300 employees from its 1,400-person work force. It declined then to say how many of the 48 employees at the county’s three branches would be affected.
Investment firm not affected
First Bank of San Luis Obispo was sold to Pacific Capital Bancorp in 2005 in a cash deal worth $60.8 million. Two years later, Pacific Capital bought R.E. Wacker Associates, a San Luis Obispo-based registered investment adviser. The company was expected to pay $6.9 million in that deal.
Bob Wacker, president and chief investment officer of R.E. Wacker Associates, said the cash infusion will not affect Wacker Associates and he’s encouraged by the steps the bank has taken to ensure its viability. “We expect they will continue to do business as they did before.”
Pacific Capital Bancorp is the parent company of Pacific Capital Bank N.A., which operates branches under Santa Barbara Bank & Trust, First National Bank of Central California, South Valley National Bank, San Benito Bank and First Bank of San Luis Obispo.
The company’s stock, traded on the Nasdaq exchange (PCBC), closed Thursday at $2.19, down 47 percent from the previous day.