Crisis Management
Worries about the Asian crisis and a slowing U.S. economy notwithstanding, significant investment from Wall Street and Taiwan is flowing into two Southern California banks.
In June, Merrill Lynch, Oppenheimer, Wellington Fund and 50 other Wall Street institutions, along with wealthy individual investors, put up about $200 million to buy San Marino-based East West Bank from Indonesian Chinese owners who were in a hurry to sell because of Asian crisis pressures.
Last October, Taiwan’s Bank Sinopac paid $94 million to purchase Far East National Bank, which Henry Hwang, an immigrant from China, opened in 1974 as the first Asian American-owned U.S. bank. Sinopac is investing about $5 million more to hire additional personnel over the next two years and expand Far East’s business in corporate finance and new areas of California.
Both acquisitions reflect confidence in business opportunities in California’s Asian-immigrant communities. Dominic Ng, the president of East West who personally lined up Wall Street buyers for the bank, says investors were eager to buy into “the largest Chinese-owned bank in the United States.” He sees opportunity in providing financing for importers from Asia and backing local entrepreneurs with Asian connections.
Paul Lo, chairman of Far East, chief executive of its Taipei-based parent Sinopac and a lifelong friend of Henry Hwang, sees the California bank as hub of a Pacific Rim financial network. “Banking is changing in Asia and America,” says Lo, a onetime Citibank official in Los Angeles and San Francisco. He sees Far East and Sinopac getting involved in equity financing of small companies.
East West and Far East obviously draw strength from their Asian connections. Yet the message behind their deals and their plans for the future is that small banks are being strengthened to serve the new economy of Southern California, which is one of niche industries and small companies.
In that context, it’s revealing that both banks were acquired at bargain prices compared with the premiums paid in this year’s mergers of banking giants--Norwest with Wells Fargo and Nationsbank with Bank of America. Why the low prices? Because the small banks were bought for cash by entrepreneurs and shrewd investors who could see opportunity amid current anxiety.
The Asian financial crisis is causing a decline in the value of exports through California ports but sparking a surge in imports. And immigrant community banks such as East West lend largely to importers. “From our point of view, the crisis has brought better pricing and leverage in negotiation,” says Winnie Sim, who with her husband David, runs Kenvin Inc., a Los Angeles-based importer of men’s suits and an East West customer.
The real estate business continues to grow. In its 24-year history, Far East built a reputation as a fast and supportive lender to developers and that capability will be enhanced by the link with Sinopac, a bank 10 times Far East’s size. “I always found that Far East had an ability to react to small-business needs,” says Andrew Sun, president of World Premier Investments, a Santa Ana-based developer of shopping centers.
To be sure, crisis in Asia means trouble in California. High-tech manufacturers in Orange County and Silicon Valley, and the movie and television industry of Hollywood, have seen a decline in sales to Asian countries. The bustling two-way trade in computer parts between Taiwan and the city of Industry has slowed.
*
But entrepreneurial bankers see this as a time to invest. Both Far East and East West have just opened offices in Silicon Valley.
And overseas, “this is the time to invest in Asia,” says Lo, “but Bank of America is nowhere in Asia these days.” Privately, small-bank folks speculate that after their big mergers the giant banks will spend the next two years arguing over which executives get laid off and which get new offices. The inertia could open up opportunities for small banks.
Far East plans to increase special financing and management counseling for family-owned companies. The bank is also applying to open offices in Mexico.
East West, which Ng hopes to take public in the next six months, sees opportunity in lending for low-income housing development. It’s a federal-tax-supported activity, but beyond that it’s a good business, says Ng, who immigrated from Hong Kong in 1980.
“We’re lending to low-income housing in Las Vegas,” he says. “With all the luxury hotels and residential communities being built there, there has to be a place for the working people to live.”
That kind of opportunistic thinking characterizes business in Southern California, which now depends for growth and prosperity on no fewer than 14 niche industries, from business services to toys. The fact that no single industry dominates, as aerospace once did, gives the area strength.
But small companies need supportive lenders who understand their business. In that respect, innovative, niche bankers, such as City National, Imperial Bank, Southern California Bank in Anaheim and Silicon Valley Bank, have grown successful by lending managerial support as well as money to small companies. Smart bankers see growth opportunities in simply serving customers. “My bank has grown 50% just by catering to local customers,” says Don M. Griffith, chairman of First Coastal Bank of El Segundo and a onetime chief financial officer of First Interstate.
And that’s just the kind of bank Far East and East West want to become. Ng of East West even lists Imperial Bank, a lender specializing in niches of many industries, as a model for his bank.
The trend in all this is positive. In a time of takeover mania among large banks, smart money from Wall Street and Taiwan has invested in the prospect that East West and Far East will grow with their small-business customers and the California economy.
And the banks themselves welcome the investment because they see opportunity amid the fallout from the Asian crisis. It’s a business attitude very different from that of the recessionary early ‘90s, one that is eager to find advantage in adversity.
