Fitch Assigns 'BB+' IDR to PacWest Bancorp; Upgrades and Withdraws CapitalSource's IDR

  Fitch Assigns 'BB+' IDR to PacWest Bancorp; Upgrades and Withdraws   CapitalSource's IDR  Business Wire  CHICAGO -- April 8, 2014  Fitch Ratings has assigned long- and short-term Issuer Default Ratings (IDRs) to PACW and its main bank subsidiary, Pacific Western Bank of 'BB+/B'. The Rating Outlook is Stable. Additionally, Fitch has upgraded and withdrawn the IDRs of CapitalSource, Inc. (CSE) and its bank subsidiary, CapitalSource Bank (CSB) following the announced closing of its merger with PacWest Bancorp (PACW). The ratings of CSE are aligned with PACW as the company will operate as a division of PACW post-merger. A full list of ratings follows the end of this release.  KEY RATING DRIVERS - IDRs and VR  Since CSE and CSB have merged into PACW, their IDRs and Viability Rating (VR) are removed from Rating Watch Positive, aligned with those of PACW and withdrawn. The upgrade of CSE and CSB's ratings is based on Fitch's assessment of CSE and PACW's combined pro forma financial and credit profile. Fitch views positively the expected improvement in CSE's deposit base, funding profile, loan portfolio diversification and overall franchise as a result of the combination.  The assigned ratings of PACW are supported by its good market position in its core markets, earnings generation over the last two years, improving asset quality, and solid capital profile. The Stable Outlook reflects Fitch's view that the combined entity will generate reasonable earnings and maintain adequate capital levels for its rating category in the medium-to-longer term.  PACW has grown through a series of acquisitions since its organization in 1999, and there remains the potential for execution risk in its most recent merger with CSE. However, Fitch recognizes that management appears to have achieved a good track record of integrating its acquisitions. The company estimates after-tax merger related charges to be around $60 million and anticipates pre-tax cost savings of $47 million over the next two years. Fitch views these targets to be reasonable and achievable given a transaction of this size and their prior track record.  Fitch observes that PACW has generated earnings coming out of the crisis, but is somewhat volatile quarter to quarter due to the variability of noninterest income. For example, ROAA fluctuated from 1.0% to 0.3% to 1.5% and 0.2% in the first quarter of 2013 (1Q'13), 2Q'13, 3Q'13 and 4Q'13, respectively. However, core earnings, which exclude some of the one-time integration-related and other non-core charges tend to be more consistent, and in line with peer averages. Pre-provision net revenues (PPNR) were solid, at around 1.6% on average over the past 12 quarters. Fitch believes that the projected cost savings could augment earnings performance in the near-to-medium term, however it might be somewhat offset by modest net interest margin compression and any future acquisition-related costs.  Asset quality metrics have continued to improve over the last several quarters, and consistent with trends of with similarly rated peers. Non-performing assets (NPAs, inclusive of accruing TDRs but exclusive of covered loans) were 3.2% at year-end 2013, improving considerably from 5.5% at the prior year-end. The company has shown the ability to work down NPAs with relatively low credit costs. PACW's net charge-offs as a percentage of average loans over the last five quarters were 0.20%, which compares favorably to industry peers. Fitch expects pro forma asset quality metrics will improve further with the acquisition of CSE's loan portfolio given its strong asset quality profile. At year-end 2013, CSE's NPA and charge-off ratios were 1.49% and 0.27%, respectively.  Fitch views PACW's capital levels as solid and appropriate for its ratings. At Dec. 31, 2013, the company reported ratios of 9.2%, 15.1% and 16.4% for tangible common equity (TCE), Tier 1 risk-based capital (RBC) and total RBC ratios, respectively. Post-merger, the ratios are expected to be 10.5%, 11.7%, and 15.7%, respectively. The pro forma TCE ratio is expected to improve modestly given CSE's strong capital base. As of Dec. 31, 2013, CSE reported ratios of 13.88%, 15.03% and 16.29% for TCE, Tier 1 RBC and total RBC ratios, respectively. Fitch would expect the company to maintain an appropriate capital profile as PACW continues to make acquisitions in the future.  RATING SENSITIVIES - IDRs AND VR  Fitch believes PACW's ratings have greater upside than downside over the medium-term, possibly supported by a more stable earnings profile, while maintaining strong asset quality and adequate capital levels over the medium-to-longer term.  Conversely, the ratings could be pressured if operating performance trended downward, should the company fail to appropriately manage integration risk. In addition, deterioration in asset quality performance or failure to maintain solid capital levels could result in a review of PACW's ratings and Outlook.  KEY RATING DRIVERS and SENSITIVITIES- Support and Support Rating Floors  PACW has a Support Rating of '5' and a Support Rating Floor of 'NF'. In Fitch's view, PACW is not systematically important and therefore, Fitch believes the probability of support unlikely. PACW's IDRs and VR do not incorporate any support. PACW's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support should such support be needed.  KEY RATING DRIVERS and Sensitivities - HOLDING COMPANY  PACW's IDR and VR are equalized with those of its bank, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries.  Should PACW's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies.  PACW did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.  Fitch assigns the following ratings:  PacWest Bancorp  --Long-term IDR at 'BB+';  --Short-term IDR at 'B';  --Viability Rating at 'bb+';  --Support at '5';  --Support floor at 'NF'.  Pacific Western Bank  --Long-term IDR at 'BB+';  --Long-term deposits at 'BBB-';  --Short-term IDR at 'B';  --Short-term deposits at 'B';  --Viability Rating at 'bb+';  --Support at '5';  --Support floor at 'NF'.  Fitch has upgraded, removed from Rating Watch and withdrawn the following ratings:  CapitalSource, Inc.  --Long-term IDR to 'BB+' from 'BB'.  CapitalSource Bank  --Long-term IDR to 'BB+' from 'BB';  --Long-term deposits to 'BBB-' from 'BB+'  --Viability Rating to 'bb+' from 'bb';  Fitch has affirmed, removed from Rating Watch and withdrawn the following ratings:  CapitalSource Bank  --Short-term IDR at 'B';  --Short-term deposits at 'B';  --Support Rating at '5';  --Support Rating Floor at 'NF'.  Additional information is available at ''.  Applicable Rating Criteria and Related Research:  --'Global Financial Institutions Rating Criteria' (Jan. 31, 2014).  --'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012).  Applicable Criteria and Related Research:  Global Financial Institutions Rating Criteria  Rating FI Subsidiaries and Holding Companies  Additional Disclosure  Solicitation Status  ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. 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