More Banks Marketing Loan Portfolios to Private Equity Buyers

Early this week, alternative investment manager Ares Management announced that it had acquired a $3.5 billion specialty finance loan portfolio from PacWest Bancorp that included residential and commercial real estate loans.

Last month, PacWest sold its real estate lending arm to Roc360 for an undisclosed amount and its CRE loan portfolio to Kennedy Wilson for $2.4 billion.

PacWest’s stock is up about 12% since the close of last week.

It’s not the first nor the last of such deals. After rising interest rates ignited a bank liquidity scare in March, resulting in the closure of several banks by the Federal Deposit Insurance Corporation, smaller, midsized, and regional banks have been looking for buyers of loan assets.

“Private credit investors including Ares and KKR said they were being offered more portfolios in areas such as car and consumer loans, commercial real estate and speciality <sic> finance,” the Financial Times reports. “Loan prices had also become more attractive to buyers, with sellers offering larger discounts to face value in the past couple of months, some of the investors said.”

More banks are likely to be selling assets to bolster their balance sheets and calm the worries of depositors and investors because they’re still feeling pressure, although the Federal Reserve Chair Jerome Powell in his most recent testimony before Congress said, “The U.S. banking system is sound and resilient.” He added that banking regulators “took decisive action in March to protect the U.S. economy and to strengthen public confidence in our banking system. The recent bank failures, including the failure of Silicon Valley Bank, and the resulting banking stress have highlighted the importance of ensuring we have the appropriate rules and supervisory practices for banks of this size.”

Most banks haven’t embraced sanguinity. Part of the reason — which leads to many looking to unload loan portfolios — is the concern that as types of loans get sold off from the perceived need of liquidity, they might go for less than par value. That could reset market rates and undercut the reported value of loan portfolios that banks continue to hold, leading to the potential for more panic, deposit withdrawals, and liquidity challenges.