In this excerpt of TWST‘s interview with Joseph Gladue, senior equity research analyst at B. Riley & Co., Gladue discusses his coverage of California-based ethnic-oriented banks, comparing their performance to that of peers within the Western and Pacific banking sector.
TWST: You mentioned the ethnic-oriented banks. How have they performed in comparison to conventional banks?
Mr. Gladue: Chinese banks were some of the banks that were harder hit by the troubles in residential construction. East West Bank (EWBC) had a lot of problems in that area, as did their biggest rival, UCBH (UCBH.PK). Of course, UCBH was taken over by the regulators, and ultimately most of their operations were sold to East West Bank. East West has been pretty aggressive on writing off their problem loans, and they benefited from the FDIC-assisted transaction of UCBH. That transaction is probably the poster child for the benefits of doing an FDIC-assisted deal. East West had some big gains from accounting for that transaction, and it looks like it is going to be pretty accretive to East West’s operations going forward. Cathay Bancorp (CATY), the other big Chinese-oriented bank, didn’t have quite as big a problem with construction lending as East West or UCBH did, but they still ran into some problems with asset quality as well. Both East West and Cathay have done some capital raises; they seem to be relatively healthy on the capital front now.
There are really four large Korean banks. The largest in terms of assets is Hanmi (HAFC). Hanmi is a little bit different than the other three. They’re less focused on commercial real estate lending and had a bigger exposure to C&I lending, but they have had some big asset-quality issues, and they do need to raise capital. There have been some rumors in the papers, some emanating out of South Korea, that one of the big South Korean banks was interested in investing in Hanmi. That has not come to pass yet, but that rumor is still out there. The other three large Korean-American banks – Wilshire (WIBC), Nara (NARA) and Center Bank (CLFC) – all are more focused on commercial real estate. They’ve all had some growth in their non-performing assets, but the pain hasn’t been as bad in that segment so far, as it was in the residential area. All three of those banks seem to be able to raise capital from existing shareholders and from within the Korean-American community. There has been some speculation that if Hanmi doesn’t find outside investors, that Nara or Wilshire could end up being the ultimate acquirer of that bank, but that’s a little premature at this point.
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