[EDITOR’S NOTE: This is an updated version of this story.]
IN THE RED: Santa Barbara Bank & Trust’s parent announced a $61 million second-quarter loss today, but said it had satisfied “significant conditions” needed to close the pending $500 million investment by Texas banker Gerald J. Ford. When the Ford deal closes, expected by August 31, parent Pacific Capital Bancorp said it expects that its capital ratios “will again” exceed ratios required to be considered “well-capitalized” under regulatory guidelines.
Under a federal consent order, the bank must boost its capital ratios by September 8 or face the prospect that federal regulators can demand the bank come up with a plan to sell, merge, or liquidate the 50-year-old South Coast financial icon. That would send shock waves throughout Santa Barbara and its 48 Central Coast branches.
While Pacific Capital has now lost $142 million in the first half of 2010, all eyes are on its capitalization levels. In May, it signed a consent order requiring it to raise its tier one capital level to 9 percent and its risk-based level to 12 percent. Current levels are 4 percent and 9.5 respectively. It has also extended its deadline for debt holders to cash out at 40 to 65 cents on the dollar until August 27.
In today’s conference call announcing second quarter results, CEO George Leis expressed great optimism that despite the “challenging months” the bank will “thrive in the years ahead.” He also reported news regarding Ford’s investment. The bank is also awaiting federal approval of the Ford deal.
Other news in the bank’s second quarter financial report was that the U.S. Treasury has agreed to take stock in return for settling the $180 million TARP (Troubled Assets Relief Program) loan at the rate of 20 cents on the dollar, which also improves the bank’s capital position.
The Ford investment would give the Texan 91 percent equity in Pacific Capital, meaning that present shareholders face a major dilution in the value of their shares. “Once this $500 million investment is closed, Pacific Capital will again be one of the strongest community banks serving customers on the Central Coast of California,” officials said.
With the Treasury taking about seven percent of the stock to settle the TARP rescue loan, this would leave current shareholders diluted down to around two percent Pacific Capital stock closed at $1.23 today. In an unusual step, the bank did not take any comments or questions during the conference call.
Pacific Capital lost $481 million last year, with a heavy burden of toxic loans to blame. In the past two years it has laid off around 315 employees and slashed retiree benefits.