Cathay to Vault to Top Slot of U.S.’ Asian Bank Niche

For Asian American banks, ethnic is giving way to eclectic.

Los Angeles-based Cathay Bancorp Inc. took a big step in that direction Wednesday, agreeing to buy GBC Bancorp Inc., a local rival that has aggressively branched out beyond its core base of Asian American clients -- financing the construction of Indian casinos, investing in junk bonds and dabbling in aircraft leases and metals trading.

The purchase, for $431 million cash and stock, would make Cathay the largest Asian American bank in the United States, demoting to the No. 2 slot San Francisco-based UCBH Holdings Inc., parent of United Commercial Bank.

By combining Cathay Bank and GBC’s General Bank, the deal would create a new company, Cathay General Bancorp, with a network of branches throughout California as well as in Texas, Massachusetts and Washington state and offices in Hong Kong, Shanghai and Taipei. Its deposits would total $4.3 billion and its assets $5.4 billion.

Dunson K. Cheng, Cathay’s chairman and chief executive, said that although his bank has “loaned to the mainstream all along,” he sees “the potential for more growth there.”

Indeed, to keep growing, the country’s big Asian American banks have been challenged to expand beyond their lucrative base, mostly in Chinese American neighborhoods, to reach into traditional non-Asian businesses and deeper into such sectors as foreign trade.

Dominic Ng, the chairman of San Marino-based East West Bancorp, the country’s second-largest Asian American bank, has long talked about how his bank is successful because it bridges cultures. He said it has remained true to its core clientele in the Chinese American community as it has expanded by lending in many other arenas.

Ng said Wednesday that he was proud of competitors Cathay and GBC and their plans to combine.

“It’s nice to hear that an Asian bank can get to over $5 billion in assets,” he said.

Analysts say expansion opportunities appear great for all the major Asian American banks -- most of which are known for the high efficiency of their operations.

But GBC’s General Bank, they note, has been a bit different. In fact, some analysts figured General Bank would never find a buyer, in part because so many of the bank’s investments misfired that regulators made it sign a pledge to clean up its lending practices and boost capital.

One of those analysts, Lana Chan of Advest Inc., had rated GBC shares a “sell” because of the purported unlikelihood of a sale. “Oh well,” Chan said Wednesday. “I was wrong.”

General has experienced losses as well as gains in recent years on aggressive venture-capital investments, junk bonds and loans on the construction of Indian casinos.

In part because of what it said was poor judgment by a New York lending office, General lost money on aircraft leasing, on shared loans to major corporations and on an international metals-trading scam that swindled large banks such as J.P. Morgan Chase & Co. as well as smaller ones such as General and Chinatrust last year.

GBC’s chairman, Peter Wu, said General, having closed the New York office, has identified and is dealing with all the problem areas. At Cathay, Cheng said his staff has analyzed about 65% of the loans made by General, “and what we saw is something we can work through.”

Wall Street, however, appeared skeptical. Cathay shares Wednesday fell $2.83, or 6.6%, to close at $39.83 on Nasdaq, making the stock portion of the offer -- 6.75 million shares -- worth $268.9 million.

Cathay said it also would pay GBC shareholders $162.4 million in cash; GBC shares rose $5.45, or 18.1%, to close the day at $35.53 on Nasdaq.

Cathay has been far and away the stronger performer for shareholders in recent years, with its stock up more than 225% since the end of 1997.

By contrast, shares of General lost about a third of their value during those five years, underperforming the S&P; 500 stock index as well as regional California bank indexes.

The acquisition, expected to be completed in the fourth quarter, would immediately add to Cathay’s per-share earnings, Cheng said, adding that the combined bank should be able to cut costs by 16% over the next 18 months.

The companies said they expect to close six to eight branches as they consolidate and eliminate an undetermined number of jobs. Cathay currently has about 580 employees, while GBC has about 400 employees.

Under the deal, Cheng would be chairman and CEO of the combined bank, while Wu would be executive vice chairman and chief operating officer.

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Asian-American focused banks

Here is a list of some of the largest banks in California that are focused on the Asian-American market, with headquarters city and assets totals:

1. United Commercial Bank, San Francisco: $4.86 billion ÷

2. East West Bank, San Marino: $3.32 billion÷

3. Cathay Bank, Los Angeles: $2.91 billion÷

4. General Bank, Los Angeles: $2.49 billion÷

5. Chinatrust Bank (USA), Torrance: $1.76 billion÷

6. Hanmi Bank, Los Angeles: $1.55 billion÷

7. Far East National Bank, Los Angeles: $1.49 billion

8. Nara Bank, Los Angeles, $1.02 billion÷

9. Pacific Union Bank, Los Angeles, $940 million÷

10. Standard Savings Bank, Monterey Park, $893 million÷

Sources: Company reports, Federal Deposit Insurance Corp.

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Cathay at a glance

With Cathay Bank’s purchase of rival GBC Bancorp, the new Cathay General Bancorp would emerge as the nation’s largest Asian-focused bank.

Cathay Bank

Founded: 1962

Branches: 12 in Southern California, eight in Northern California, three in New York and one in Houston, plus offices in Hong Kong, Shanghai and Taipei. General would add 21 branches.

Chairman, president and CEO: Dunson K. Cheng

Net income: $12.5 million in the first quarter of 2003, a 10% increase over first quarter 2002.

Assets: $2.9 billion as of March 31

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Timeline

1962: Los Angeles Chinatown storefront becomes first Chinese American community bank in California.

1979: First branch opens in Monterey Park.

1985: Office opens in Hong Kong.

1988: Investment subsidiary opens in Taiwan.

1990: Holding company Cathay Bancorp is created.

1996: First Public Savings Bank is acquired.

1997: Westminster branch of Lippo Bank is acquired.

1999: New York’s Golden City Commercial Bank is acquired; lending office is opened in Houston.

2003: GBC Bancorp to be acquired for $450 million in cash and stock.

Source: Cathay Bank