Cathay General to Acquire 20% of Bank in Shanghai

Cathay General Bancorp, a Chinese American bank that has been expanding beyond its base in Los Angeles, agreed Friday to acquire 20% of Shanghai-based First Sino Bank for $52 million, opening the way for Cathay to provide its U.S. customers with banking services in China.

First Sino was set up in 1997 to provide financing for Taiwanese companies doing business on the mainland. To continue to expand, it needs the approval of Chinese regulators, who have asked the bank to bring in additional investors.

Cathay will buy its 20% stake from Taiwanese shareholders, who own 85% of First Sino, Cathay Chairman Dunson Cheng said.

Cathay also will have the right to appoint two directors to First Sino’s 10-member board, he added.

The deal must be approved by U.S. and Chinese regulators.

The alliance will help Cathay better serve U.S.-based importers, who have asked the bank to arrange financing to buy equipment and raw materials in China, Cheng said. Cathay would be able to do so through First Sino.

The Chinese bank, in turn, is expected to encourage its customers to use Cathay when doing business in the United States.

Cathay customers will be able to make deposits and withdrawals to their accounts through First Sino, functions they cannot perform at Cathay’s representative offices in Hong Kong, Shanghai and Taiwan.

Cathay shares fell 26 cents, to $37.64. Chief Financial Officer Heng Chen said the bank should break even on its investment this year and see per-share earnings increase in 2006 and 2007 as a result of the deal.