Banks Wrestle for Larger Share of Chinese American Market
Two Chinese American banking companies that have outgrown their California roots appear to be nearing the end of a bitter takeover battle for Great Eastern Bank, which serves ethnic Chinese communities in New York.
The victor -- either Cathay General Bancorp of Los Angeles, or San Francisco’s UCBH Holdings Inc. -- would own the largest Chinese American bank in New York. Those stakes help explain why the bidding war for Great Eastern has become such a street fight, analysts say.
“You just don’t usually see this kind of hostile takeover battle in this segment of the market, or for that matter at banks of this size generally,” bank analyst Don Worthington said.
Both California companies appear determined to continue on rapid growth tracks, something that can be done only by gobbling up smaller competitors in other states. Each sees the Great Eastern deal as a shining opportunity to continue expansions already underway into the ethnic Chinese markets in New York’s Chinatown, Brooklyn and Flushing, a section of Queens.
“New York is easily the second-largest [Chinese American] market outside of California, so it makes sense to go there,” said Worthington, who follows Asian American banks for Hoefer & Arnett in San Francisco.
Great Eastern is typical in size for a New York-based Chinese American bank, with five branches and $320 million in assets.
By contrast, Cathay has about $6.4 billion in assets, and UCBH has about $7.9 billion. San Marino-based East West Bancorp, the largest Chinese American bank, will have about $9 billion when it completes its pending acquisition of Standard Bank in Monterey Park.
Cathay and UCBH each have four branches in New York. In their current contest, Cathay struck first, moving to acquire Great Eastern in private talks with its management.
Great Eastern’s board rebuffed those efforts. In response, the Los Angeles bank announced in September that it had lined up options to buy 41% of the stock of the closely held New York bank, and intended to negotiate directly with shareholders to buy the remaining 59%.
Rejecting that bid as hostile, Great Eastern approached other potential suitors. In October, UCBH stepped forward as a “white knight” with a cash and stock offer valued at $104 million -- 50% more than Cathay had bid. That UCBH bid had the backing of Great Eastern’s board.
Analysts bet at the time that Cathay would exercise its options to acquire 41% of Great Eastern, then sell the shares to UCBH for a $14-million profit.
But Cathay instead topped UCBH’s offer and pressed ahead with its bid. Great Eastern filed a protest to no avail with the Federal Reserve, which ultimately blessed the deal, as did New York banking regulators.
In the last month, UCBH has declined to raise its bid, and both offers have been revised downward after reappraisals of some Great Eastern properties. As a result, UCBH’s offer is currently worth about $97 million to Great Eastern shareholders and Cathay’s about $101 million.
Cathay Chief Executive Dunson Cheng declined to discuss his bid for the New York bank, citing the sensitivity of the negotiations. UCBH CEO Thomas Wu and Great Eastern CEO William Laraia also declined to comment.
In addition to offering the slightly sweeter bid, Cathay has a powerful factor in its favor, analysts said. Under New York state law, any sale of a bank must be approved by two-thirds of its shareholders. Thus, Cathay’s options to buy 41% of Great Eastern’s stock effectively gives it a veto over any other deal.
“I think at the end of the day Cathay is going to be the ultimate acquirer,” said RBC Capital Markets analyst Joe Morford. “You need two-thirds majority, so Cathay could technically block any deal. Their bid is higher. And so it seems if they want to sell, Cathay is the one they’ll want to strike the deal with.”
Morford said Cathay and Great Eastern had been holding discussions. He and people at the banks with knowledge of the talks said a decision could be announced as early as next week.
In an unusual twist, UCBH’s bid won backing from the Greenlining Institute, an advocacy group that lobbies for greater lending by banks in minority communities. As Asian American banks have grown, the organization has pressured them to do more business in African American and Latino neighborhoods, and it said UCBH had made a greater commitment to do so than Cathay.
Mindful of those pressures, Cathay recently agreed to invest as much as $2.9 million in Broadway Financial Corp., whose Los Angeles-based Broadway Federal Bank was established to serve inner-city African Americans and Latinos as well as Asian Americans. In a Securities and Exchange Commission filing, Broadway said Cathay’s intent was to support Broadway’s “role as a provider of banking services in the minority communities.”
Cathay already owns 5% of Broadway, and the additional investment, now awaiting approval by regulators, would bring its stake to just under 15%.
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UCBH Holdings Inc. (United Commercial Bank)
* Year founded: 1974
* Chairman and CEO: Thomas S. Wu
* Assets: $7.96 billion
* U.S. branches: California (40), New York (4), Massachusetts (3), Washington state (2)
* 2005 profit: $98.7 million
* Thursday’s closing stock price: $16.99
Cathay General Bancorp (Cathay Bank)
* Year founded: 1962
* Chairman and CEO: Dunson K. Cheng
* Assets: $6.37 billion
* U.S. branches: California (31), New York (4), Washington state (2), Massachusetts (1), Texas (1)
* 2005 profit: $104.1 million
* Thursday’s closing stock price: $34.59
Source: Times research