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Michael Burry, known for his prescient bet against the housing bubble portrayed in “The Big Short,” turned his eye towards the banking sector during the regional banking crisis in the first quarter of this year.
While the contrarian’s Scion Capital purchased downtrodden bank stocks during the period, Benzinga is going to focus on his trade on PacWest Bancorp (NASDAQ:PACW).
Key Background: In the first quarter, regional banks across the U.S. found themselves embroiled in a crisis that sparked fears about the resilience of the regional banking system. PacWest, a Beverly Hills, California-based bank, found itself at the heart of the fears due to deposit outflows and plummeting share prices.
During that tumultuous period, Burry, ever the contrarian, saw an opportunity.
Scion Capital’s latest 13F filing, reported on May 15 for the quarter ending March 31, showed the company had purchased 250,000 shares of PacWest for a total of $2,432,500, with an average price of $9.73 per share.
Fast forward to Tuesday when the PacWest and Banc of California Inc (NYSE:BANC) merger news hit the market.
While shares of PacWest have largely continued their descent from Scion Capital’s May 15 filing for shares owned on March 31, the stock saw a lift on the news, peaking at a high of $11.21 on Tuesday.
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If the "Big Short" investor held the position until the merger news hit, he would've been up about $1.48 per share, or 15.21%.
But, there's more. Under the merger terms, PacWest shareholders will receive 0.6569 shares of Banc of California for every PacWest share they own.
With PacWest shares currently trading at $9.80, the deal presents Burry with a mere $0.07 profit per share, should he hold until the merger’s completion.
Announced alongside the companies’ respective earnings reports, the merger aims to position the business banking franchise to leverage market opportunities, expand its customer base, and enhance its product offerings through increased scale.
Another expected benefit of the merger is improved liquidity through targeted balance sheet repositioning.
In the second quarter, Banc of California reported earnings of 32 cents per share, beating a 30-cent Street estimate, on revenues of $69.63 million, which fell short of the $71.65 million consensus estimate. PacWest, on the other hand, reported earnings of 22 cents per share, edging out a Street estimate of 20 cents.
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