East West Bank adds capital
East West Bancorp, seeking to bolster its financial strength and boost cash to support more lending, sold 11 million new shares to investors Tuesday, raising $66 million.
The parent of East West Bank has been trying to convince Wall Street that it will be a sure survivor of the California real estate crash -- and ready to take business from rivals.
Chief Executive Dominic Ng’s strategy: quickly raise the Pasadena bank’s capital cushion to levels that Ng believes will be sufficient to buttress the lender against further credit losses and also provide money for new loans.
Ng said demand for the new shares was strong. East West was able to price the deal at $6.35 a share, a relatively modest 5.5% below the stock’s closing price Monday of $6.72.
By contrast, the median discount demanded by investors in new share sales by small and mid-sized banks this year has been 7.9%, according to a tally by research firm Keefe Bruyette & Woods.
The stock sale was East West’s third move this month to raise its base capital level. The bank boosted so-called tangible common equity by $90 million July 1 by converting some preferred shares to common. It added $27.5 million more in capital last week by selling 5 million new shares to two private investors.
East West, with $12.7 billion in assets, now has tangible common equity totaling 6.9% of assets, a “comfortable level,” said Julianna Balicka, an analyst at Keefe Bruyette.
Still, she expects the bank to continue losing money in the second half as it copes with rising loan losses.
Ng said he would use the additional capital in part to support an ongoing campaign to identify and deal with troubled loans early, essentially writing off bad credits before they worsen. He said that effort, which began with an examination of lending in the troubled construction sector, had helped produce recent declines of more than 30% in the total of East West loans that have gone delinquent or have stopped paying altogether.
The new capital also will support more lending, Ng said. He said he sees opportunities to lend to stronger firms in industries that are under stress and consolidating, such as seafood imports, and to green businesses such as solar panels and electric vehicles that potentially have huge markets in Southern California.
The bank’s hunt for new loan customers is one reason why Ng said he’s in no hurry to repay the $306.5 million in government capital that East West received in December as part of the Treasury’s program to boost the banking sector.
When the bank’s profitability returns, its stock price rebounds and unemployment drops in California, “that will be the perfect time to pay back the government,” Ng said.
Another Southland bank, CVB Financial of Ontario, is taking a different tack. CVB, the parent of Citizens Business Bank, raised $115 million selling new shares Tuesday. The firm said it planned to use most of the money to repay Treasury capital it got in December.
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tom.petruno@latimes.com
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