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 Additionally, Fitch has upgraded and withdrawn the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withdrawn.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 'www.fitchratings.com'.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Rating FI Subsidiaries and Holding Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=826416

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Contact:

Fitch Ratings
Primary Analyst
Johann Juan, +1 312-368-3339
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Ryan Doyle, +1 212-908-9162
Director
or
Committee Chairperson
Julie Solar, +1 312-368-5472
Senior Director
or
Media Relations:
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brian.bertsch@fitchratings.com
 
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