UPDATE 2-Gerald Ford to invest $500 mln in Pacific Capital

* Private equity firm to get shrs at 95 pct discount

* Pacific Capital posts 8th straight qtrly loss

* Shares sink as much as 57 pct (Recasts, adds details, updates stock movement)

BANGALORE, April 29 (Reuters) - Billionaire banker Gerald Ford has agreed to buy a 91 percent stake in struggling lender Pacific Capital Bancorp PCBC.O for $500 million.

The company will sell 225 million shares at 20 cents a share to Ford’s private equity firm Ford Financial Fund. The offer is at a 95 percent discount to the stock’s Wednesday’s close of $4.11.

“We are taking these actions today as the best alternative available to us to assure the company’s future,” said Edward Birch, chairman, Pacific Capital Bancorp.

Pacific Capital will also sell 455,000 shares of newly created preferred stock to the fund at $1,000 per share.

Shares of the company were down 47 percent at $2.18 in afternoon trade on Nasdaq. About 26 million shares exchanged hands by 1255 ET, versus the stock’s 50-day moving average of 2.6 million shares.


For a graphic on Pacific Capital’s stock performance:


The Santa Barbara, California-based lender, hit by a steep fall in property prices in its residential construction portfolio, has been exploring strategic alternatives to strengthen its capital base.

Following the investment, the U.S. Treasury -- which has given the lender $188 million in bailout funds -- will own 7 percent, the company said in a statement.

The company, however, will need to get approval from the Treasury to exchange its preferred shares and warrants into common stock at 20 cents a share.

Both Gerald Ford and Carl Webb, who is a senior principal at Ford Financial Fund, will join Pacific capital board on closing of the investment.

Texas banker Ford is known for making fortune by buying and selling distressed thrift banks -- the most successful being his sale of Golden State Bancorp to Citigroup C.N in 2002 for about $5.3 billion. The bank holding company reported its eight straight quarterly loss of $79.9 million, or $1.71 a share.

Sandler O’Neill Partners served as the financial adviser to Pacific Capital Bancorp, while J.P. Morgan advised Ford Financial. (Reporting by Sweta Singh in Bangalore; Editing by Vinu Pilakkott and Gopakumar Warrier)