Tremors at Pacific Capital

The departure of a senior C-level official at Pacific Capital prompts speculation that the bank is on the verge of a shake-up.  Stephen Masterson, who serves as both Chief Financial Officer and Chief Operating Officer, announced on Friday last week that he will resign, effective March 12, 2010.

Masterson’s replacement was not named.

Pacific Capital has been the subject of some internet rumors that suggest it might be acquired by a number of West Coast banks. Pacific Capital has some valuable branches and a long-standing role in its local communties. In that scenario, Pacific Capital’s shareholders would see some value for their existing shares.

Another possibility is that the FDIC might seize the assets of PCBC. Shareholders would be out of luck.  Indeed, the FDIC has had an expecation that PCBC would raise capital to meet minimum thresholds.  PCBC’s shareholders authorized the issuance of more shares, but at today’s stock price, new issues would have to increase the sum of outstanding shares three or four fold in order to satisfy the minimum capital requirements.

Masterson has been in the combined role since June. He assumed the CFO position in February 2008.

For me, the interesting question in an acquisition concerns the future status of the tax solutions business.  PCBC provides liquidity for refund anticipation loans and refund anticipation checks at Jackson Hewitt and Liberty. That relationship is problematic.  Local preparers have been convicted of fraud and deceptive advertising.  This is where the FDIC steps in with concerns about safety and soundness.  Indeed, the FDIC has already done exactly that with Republic Bancorp in 2008.

It is possible that an acquisition of Pacific Capital would eliminate its RAL business.  An acquirer might view the RAL business with indifference or skepticism.  It is an unusual business line, and while it has been profitable, it draws regulatory scrutiny that might be unwelcome.  It would be a question of regulatory cost at what benefit for larger banks.

In an FDIC takeover, there is also the possibility that advocates would barter with the FDIC to not resell the RAL business.