Banc of California is selling $2 billion of residential loans

Banc of California Inc., a regional bank, is selling about $2 billion of business-purpose mortgage loans in a process led by Morgan Stanley, according to people with knowledge of the matter.

Banc of California picked up the loans after its acquisition late last year of PacWest Bancorp in a rescue deal, not long after fears of bank failures caused a run on deposits at regional lenders.

By the time of the acquisition PacWest had already sold the lending unit that made the loans, Civic Financial Services, but it held on to the pool of business-purpose loans. Bids for the loans were due on June 28, one of the people said.

Spokespeople for Banc of California and Morgan Stanley declined to comment.

In its first quarter earnings call, Banc of California’s chief executive officer, Jared Wolff, said that it had already sold some of the Civic-originated loans it acquired from PacWest. Wolff added that the bank may look to sell larger portions of the portfolio in the coming quarter as part of the bank’s push to boost its profits.

A number of regional banks have looked to trim their balance sheets ahead of the implementation of revamped bank-capital regulations known as Basel III Endgame. Many of the assets being shed by banks are ending up with private credit lenders, who don’t have to worry about risk-capital requirements.

The loans being sold are known as debt-service coverage loans, which are given to landlords who rent out properties. They’re underwritten based on expected rental revenue rather than bank statements or personal income.