JPMorgan Chase & Co. will buy almost $2 billion worth of mortgages to facilitate Banc of California Inc.’s purchase of PacWest Bancorp.
(Bloomberg) — JPMorgan Chase & Co. will buy almost $2 billion worth of mortgages to facilitate Banc of California Inc.’s purchase of PacWest Bancorp.
The nation’s largest bank has entered into an agreement to buy $1.8 billion of single-family residential loans at a discount, according to people briefed on the matter who asked not to be identified discussing private information.
Banc of California said in a presentation Tuesday that it had entered into a “contingent forward asset sale agreement” for its residential mortgage portfolio, but didn’t name the buyer. Banc of California and PacWest plan to sell about $7 billion of loans, mortgage bonds and other assets in their securities portfolios to pay down expensive borrowings.
It wasn’t immediately clear whether JPMorgan plans to keep the loans or sell them on to other investors.
A representative for JPMorgan declined to comment. Representatives for Banc of California didn’t immediately respond to requests for comment.
Read More: PacWest to Be Sold to Banc of California in Latest Rescue Deal
JPMorgan has played a key role in efforts to contain the regional banking turmoil, including buying First Republic Bank in May. Its purchase of assets comes on top of the roles it played as financial adviser to Banc of California on the acquisition and sole placement agent on the equity investment from new investors Warburg Pincus and Centerbridge Partners.
The $7 billion of assets collectively yield less than 4%, and the lenders will use the sales and cash on hand to pay off $13 billion worth of borrowings that are costing them 5%. The moves are meant to reverse the unprofitable position brought on by a rapid rise in interest rates and deposit outflows, with the $400 million injected by Warburg and Centerbridge helping to cover markdowns on the assets sales.
The banks also said that they will hedge the assets they’re selling with a $3.5 billion interest-rate derivative to protect “purchase accounting risk to close.”
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