The Taiwanese investor received three words of advice about how to turn around the ailing savings bank he had just bought: Hire Kellogg Chan.
In Chinese banking circles in Southern California, the Chan family has the same recognition as the Rockefellers. Back in the early 1960s, Chan's father, F. Chow Chan, had done battle with skeptical state regulators to obtain a charter for Cathay Bank, the first commercial bank in Chinatown. In 1973, F. Chow Chan co-founded East-West Federal Savings, the first federally chartered thrift in the Chinese community.
Since then, more than 30 banks and thrifts have sprung up in Southern California's Asian communities, many posting up to 25% annual growth by targeting hard-working Asian immigrants who rarely default on loans.
At the epicenter of this world stands Kellogg Chan, F. Chow Chan's tall, broad-shouldered, cigar-smoking, 55-year-old son who oversaw East-West's growth from an S & L with $200 million in assets to a regional concern with $1.3 billion in assets. Then, in 1992, feeling "burned out," he retired to play golf and ponder his next move.
In late 1994, Taiwanese mogul J.S. Chang asked the San Marino banking scion to work his magic on Universal Bank, which was founded in Rosemead by two Italian brothers. The timing was right.
"I was bored," Chan confessed.
As chairman and chief executive officer at Universal, Chan's first task will be to make the bank, now based in Orange, turn a profit. Universal has six branches and $205 million in assets but operates in the red. Chan hopes to change that within the year. His strategy is to sell off bad debts incurred from apartment loans and to expand aggressively, especially in the eastern San Gabriel Valley, which he sees as an untapped market.
A man of intense privacy, Chan is hesitant to disclose his plans. Why, he asks, should he tip off his competitors?
But he does say this: "I don't think the Asian market for investment and service providers has peaked, and I think we will be a player. I don't want to lend in Palos Verdes or Torrance. I don't know those areas. My motto has always been: 'Do what you know best.' "
And that, for Chan, is the Asian market, especially Asian immigrants, a group that is better educated, more skilled and wealthier than any group of immigrants in the nation's history. Asians historically are also big savers and bring nest eggs of $50,000 or more when they come to this country. Some fleeing China's impending takeover of Hong Kong have brought millions of dollars with them.
But Chan knows that even those without much equity or collateral are good for their loans because when they give their word, honor requires that they keep it. So he practices what he calls "country-style" lending.
"The borrower's character is the most important component," Chan said. "When we lend in ethnic communities like the Chinese, they may not show much on their financial statements, but they will work three jobs to pay the loan back."
Chan added wryly that Asians are beginning to default on their loans as they grow more Americanized. Additionally, the go-go days of the 1980s, when millions of dollars flowed into Chinese-owned banks from Hong Kong and Taiwanese immigrants, are coming to an end. Now the money is flowing in from mainland China. And everyone agrees that the banks that capture the biggest share of that money will be those with the best cultural connections.
"In the Chinese community, a lot of things are based on trust," said Margaret To, president of the Downtown Merchants Assn. in Monterey Park. "There's no paperwork. You just shake hands, and that's totally different from an American banking institution."
This is where the name Chan translates into solid gold.
"Many of our young people understand the Western ways but have no appreciation of the old Chinese culture. Kellogg balances both," said Betty Tom Chu, who co-founded East-West, then left in 1981 to start up Trust Savings Bank based in Arcadia, which also has a large Chinese clientele.
Non-Asian banking experts also praise Chan's business acumen.
"To pull Kellogg Chan back from retirement is a real coup. He's a proven moneymaker with many contacts who has great rapport with the regulators and the industry," said Barry Rubens, president of California Research Corp., a Santa Monica-based bank consulting firm that has helped start up Asian financial institutions in the United States.
Ironically, Chan will be competing for customers with banks he helped build into household names among the immigrant Chinese, a community known for its loyalty to name and prestige brands. Now Chan's challenge will be luring their money to a smaller, lesser-known bank.
"The customer's perception is important," Chan said. "In the Far East, there's no deposit insurance. So they come here and they figure the bigger you are, the less likely you'll fail. But even if a person has a savings account, they'll probably still keep a lot of cash under the mattress. It's just their nature."
Analysts say the market remains a cash cow for those who can woo Asian immigrants with bilingual services, personal connections and a host of incentives, including staying open on Sundays.
Even big mainstream banks want in. Bank of America, founded by an Italian immigrant, established an ethnic marketing effort in 1993 to target consumers of Asian heritage.
The bank now offers promotional materials in Chinese, Korean, Vietnamese and Tagalog, advertises in the ethnic press and recruits bilingual tellers, said Leticia Alvarado, Bank of America's senior vice president and district manager for special markets.
Bank of America also has mandatory diversity training in which employees learn such cultural etiquette as how to give out business cards, shake hands and address spouses, practices that can vary greatly from traditional U.S. to Korean to Chinese society.
"Everybody is recognizing that the Asian market is growing at a rate that's four times faster than the general population, and everyone is starting to target these ethnic groups the way we've done with Hispanics for years," Alvarado said.
Kellogg Chan grew up just outside Silver Lake, a community of gracious homes near a reservoir that gives the area its name. The Chans wanted a home on the lake, but restrictive covenants until the late 1950s kept Silver Lake homeowners from selling to Asians. In 1962, the Chans became one of the first Asian families to buy in Silver Lake. F. Chow Chan, 85, still lives there.
Kellogg--whose name is an anglicization of his Chinese name Keeluik--spoke only Cantonese until he started school. There were no English-as-a-second-language classes back then--Chan learned through the sink-or-swim method.
At Marshall High School, he was one of only a handful of Asian students. But Chan doesn't recall any discrimination. He said he was too busy playing football. Marshall went to the city playoffs in his junior year, he recalls proudly.
Chan believes he escaped discrimination in part because he spoke English and was Americanized, which made assimilation easier.
"A lot of these immigrant kids today, both Asians and Latinos, come in and they speak in their native tongue and that becomes offensive in certain respects. It shows they are cliquish. Whereas when I went to school, you basically had to reach out beyond your own race."
Chan earned a degree in business administration from UC Berkeley and a law degree from Hastings College. From 1965 to 1967 he served in the U.S. Army in Korea. He joined the Los Angeles County district attorney's office as a prosecutor in 1969 and worked his way up to assistant director of the major frauds division.
"He was terrific," recalled Mitchel Harris, a deputy district attorney who worked with Chan. "He was vigorous and relentless, and he knew his business real well."
After his day in court, Harris said, Chan would hurry over to Phoenix Bakery, which is one of his family's businesses, to sell the evening's last almond cookies and close up shop.
Chan said sometimes he still rues leaving the law.
"Banking is a very slow, methodical business with not a lot of things happening at the same time, whereas if you practice law, it's always jumping. I miss the stimulation."
Long before their excursion into banking, the Chans were a prominent family on both sides of the Pacific. F. Chow Chan's great-grandfather was a successful silk merchant from Canton who came by clipper ship to San Francisco in the late 1800s.
F. Chow Chan was born in Canton but in 1933 was sent to USC to study business. In 1938, he and brother Lun F. Chan started Phoenix Bakery, now a Chinatown institution, using family recipes from China and skills Lun F. Chan learned at L.A. Trade Tech.
The bakery flourished. But like all the shopkeepers in Chinatown, the brothers had to leave their community every day to do their banking. By the early 1960s, F. Chow Chan, who had long seen a need for a bank that would serve the Chinese community, was ready to make a move.
He helped organize a small group of five investors, including the grandfather of former Los Angeles city councilman and mayoral candidate Michael Woo, then asked state regulators for approval to charter a commercial bank. The officials balked. They saw no need for such a bank. Some in the Chinese community saw the need and saw something else: racism.
"My dad thought it was a little discriminatory," recalled Kenny Chan, Kellogg's brother. "He thought there was underlying racism. But he was very persistent. He convinced them."
Today Cathay Bank has 12 branches and more than $880 million in assets, with profits of $5 million in fiscal 1994.
Ironically, for a bank that makes about 97% of its loans to an ethnic group that has experienced discrimination at the hands of whites, Cathay Bank found itself under scrutiny when The Times reported that Cathay made only one of its 121 home loans to a Latino and none to African Americans in 1991. Cathay officials responded that community banks make most of their loans locally and that they received no loan applications from blacks and only 11 from Latinos.
After founding Cathay, Chan turned his attention to the savings industry. At the time, Chinese Americans often found it difficult to get homeowner loans from mainstream banks. Betty Tom Chu, who was a prominent attorney for the Los Angeles Unified School District before she became a banker, recalls walking into a big-name bank in the 1960s and being denied even a loan application.
So around 1966, Chan and Chu applied for a charter for a state savings and loan. As with Cathay, the answer was no. According to Chu, the hearing officer recommended in favor but the application was denied higher up.
"The reason given was that there was no need, but they just hemmed and hawed and had no specific facts," Chu said. "Being minorities, we drew certain conclusions."
Chan and Chu tried again in the early 1970s, appealing to a USC professor named Preston Martin whom Chu knew from her college days and who had gone on to become chairman of the Federal Home Loan Bank Board. This time they succeeded and called their new bank East-West.
From the beginning, Kellogg Chan sat on East-West's board of directors. In 1976 he was appointed chairman, although he continued to work at the D.A.'s office until 1979, when he quit at his father's urging to do banking full time.
A generation after his father had been among the first Asians to integrate Silver Lake, Chan and his wife and children moved in 1975 to what was then the affluent, white, conservative bastion of San Marino. They were the second Asian family to integrate the tiny and exclusive city, whose Asian population today has reached 32% of its 13,307 residents.
The city quivered with racial tension in those early years. One white resident tried and failed to get the City Council to declare English the official language. A Chinese real estate broker's signs were stolen repeatedly. Anti-Asian graffiti appeared on walls at San Marino High. Fights broke out on campus.
Chan says he doesn't recall any racism directed at him or his three children, who range from junior high to college age.
"Once again, I spoke English and thought and acted like an American and so did my family," Chan said.
The banker declined to discuss his family or to be photographed in his home.
"I like to keep a low profile--that's my style," Chan said.
There are poetic parallels to Chan taking over Universal in the 1990s and targeting Asian immigrant depositors. The Italian immigrants who founded Universal Bank in 1954 did the same thing with their paisanos.
Domenic and Frank DiNoto opened their first Universal branch in Rosemead with $500,000 in capital to serve the mainly blue-collar Italian immigrant community in the San Gabriel Valley.
The bank grew, opening branches in Eagle Rock, Encino and Orange. At its peak, it had $600 million in assets. After the DiNotos died, the bank was sold in 1985 to a group of Australian investors who made a series of bad loans.
Assets dwindled to $205 million and the federal Office of Thrift Supervision was forced to step in to avert further problems. In 1990, the bank was sold to J.S. Chang, a Taiwanese tycoon who owns financial institutions in Japan and Taiwan.
Chang, who travels frequently between Asia and the West Coast, placed his two American-educated sons on the board of Universal, rotating them through bank jobs such as teller, loan officer and manager. From inquiring in the Chinese community, he learned about Chan.
"My father hired Kellogg because he is very well-known in the industry and is a proven leader," said Frank Chang, 27, one of Universal's board members.
Today Chan works 12 to 14 hours a day, trying to put his new bank in order. He would like to make its six branches and 80 employees into a $1-billion institution--just like he did at East-West.
Universal's non-performing assets, or bad loans, are at 6.9%, which is manageable, according to Rubens, the bank expert, who said that a bank with 3% to 4% non-performing assets would be considered very good.
Universal's capital-to-asset ratio is in excess of 5%, which is above the required ratio of 3%.
Chan plans to renovate all of Universal's branch offices so that they radiate modernity and affluence to new immigrants. The bank has also joined the Chinese Chamber of Commerce. And Frank Chang said he and Chan are making the rounds of Chinese community events, from golf tournaments to beauty pageants.
"You have to make a presence, join community groups and advertise in Chinese papers," Chan said.
Rubens said both the San Gabriel Valley and Orange County offer excellent expansion potential for Universal because each has more than 1 million residents, a significant number of which are Asian.
Said Rubens: "If anyone can turn this company around, he can."