PNC Bank and Goldman Sachs have each acquired part of Signature Bank’s subscription lines portfolio, transforming themselves into heavy hitters in the committed lines market overnight, and tying up one of the remaining loose ends from the banking crisis that rocked the fund finance market last spring.
PNC announced that, for its part, the book is made up of $16.6 billion in commitments, adding that the figure includes $9 billion in loans that have been funded. It expects the deal to result in an approximately 10 cents per share increase in profits to third quarter results.
Goldman purchased about $15 billion in facilities with $9 billion outstanding, Private Funds CFO understands.
PNC has been a small player in the subscription credit line business, but this purchase puts them “neatly… in the top 10 or 15 players,” one industry banker said.
A spokesperson for Goldman told Private Funds CFO that its purchase was also part of a long-term commitment to the committed lines market. Goldman has been a long-time player in uncommitted lines, which require less regulatory capital since they are not obligated to extend the loans they underwrite, which made its aim with the purchase less clear. “If Goldman wanted to be in committed lines, they would already be in committed lines,” said the industry banker, who suggested that, if the pricing were attractive enough, Goldman may have been enticed into a play to buy-and-hold it until maturities run the book down.
But the spokesperson said “that acquisition is part of a broader strategic plan to increase our commitment to growing [fixed income, currencies and commodities] financing and serving alternative managers,” and added “you should expect us to stay active in this space.”
Goldman is in the process of pivoting to wealth management, and it has a strong deposit base in its Marcus consumer banking division, which last quarter saw 41 percent revenue growth year on year as deposits continue to flood in, potentially representing a strong funding source for committed lines.
Goldman’s deal was first reported by The Wall Street Journal.
The two banks acquired the loan book from a bridge bank that the FDIC set up when it became receiver following Signature’s failure in March. New York Community Bancorp acquired other parts of Signature soon after its demise.
PNC noted that it’s no novice in private equity banking, pointing to its subsidiaries that serve the industry.
“PNC has long participated in the capital commitments business and the acquired portfolio is highly complementary,” the lender said in a statement.
The FDIC launched a bidding process for the sub lines book in July, with an October 2 closing date.
At the time, the US regulator said the portfolio had an $18.5 billion unpaid principal balance and was comprised of 201 loans. The FDIC offered Signature’s portfolio in four pools that had unpaid principal balances ranging from $4.4 billion-$4.9 billion.
Signature’s portfolio appeared to be challenging for the FDIC to sell as it ramped up the process, based on its interactions with borrowers. Private Funds CFO previously reported that the regulator was offering payback discounts – where GPs can simply turn to their LPs for capital calls to pay down balances – prior to its September 12 end date for bidding.
A spokesperson for PNC said the bank did not have anyone available to comment on information surrounding the deal that goes beyond what it has announced. PNC said it will discuss more transaction details when it holds its third-quarter earnings call on October 13.
Signature was one of three US lenders active in sub lines that failed, were acquired or both.
Silicon Valley Bank failed in March before being acquired by First Citizens Bank out of FDIC receivership, while JPMorgan Chase made a rescue deal for First Republic Bank in May.
And the sub lines space was also adversely impacted by banks pulling back lending activity due to limits on capital and internal concentrations, per Private Funds CFO’s previous reporting.
Meanwhile, Signature alumni have found new employment in fund finance, joining Axos Bank and The Huntington National Bank. Only a small handful of about three remain with the Signature, Private Funds CFO understands.