East West Bancorp repays bailout funds
Pasadena’s East West Bancorp Inc. has repaid its more than $300-million slice of bailout funds from the U.S. Treasury, but several smaller Southern California banks are struggling even to make dividend payments on their investments from Uncle Sam.
East West, the largest bank focused on the Chinese American market, said Wednesday that it used available cash to return the $306.5 million in preferred stock that the Treasury Department had purchased at the height of the financial crisis, along with a final quarterly dividend of $1.8 million. Eliminating the Troubled Asset Relief Program payments will save the bank $15.3 million a year in dividend payments.
In addition to East West, five other banks repaid their TARP funds Wednesday, the Treasury Department announced. It has projected that the total bank investments by TARP will earn a profit because of additional income from dividends, interest and the sale of stock warrants the government received.
The TARP repayment announcement was issued after markets closed Wednesday. East West shares fell 18 cents to $19.57 before the news, but regained 18 cents Thursday to $19.75. The stock is up 25% this year.
Unlike giant “too big to fail” institutions, some of which were in dire need of a bailout, community and regional banks such as East West were supposed to obtain capital infusions from the government only if they were fundamentally healthy.
East West had little need to hold on to the TARP money after it raised $500 million in new private capital in November 2009 to support its takeover of San Francisco’s failed United Commercial Bank, which was the Pasadena company’s largest rival in the Asian American banking niche.
East West, which has more than $20 billion in assets, also said Wednesday that it would buy back from the Treasury Department a warrant allowing the U.S. to buy as many as 1.5 million shares of the company’s common stock. The government obtained the warrant as part of the investment of TARP funds into East West.
The bank has far more capital than regulators require as a cushion against losses, said RBC Capital Markets analyst Joe Morford.
L.A.’s City National Corp., the only locally based commercial bank larger than East West, finished repaying its $400 million in TARP funds last March.
But smaller banks have had trouble raising funds to repay the government. A Los Angeles Business Journal survey in October found that 17 of the 19 banks in Los Angeles County that accepted TARP funds had yet to exit the program, although some, such as Mission Valley Bancorp in Sun Valley, instead have exchanged the money for government funds to be dedicated to small-business lending.
Many of the 707 banks that received government capital investments in 2008 and 2009 have struggled to pay even the 5% annual dividend that TARP required.
A report by SNL Financial this month showed 123 banks and savings and loans had deferred making the quarterly dividend payments that came due in November on their TARP investments. Skipping these payments can mean that regulators consider a bank too weak for it to deplete its capital by making the payments.
Southern California banks that skipped their November TARP dividend payments include Saigon National Bank in Westminster, which has missed all eight of its scheduled payments; Premier Service Bank, a Riverside commercial real estate lender that has missed six payments; Pacific City Financial Corp., a Koreatown bank that also has missed six payments; and CalWest Bancorp in Rancho Santa Margarita, parent of business lender South Coast Bank, which has missed only its latest payment.
Broadway Financial Corp. a Los Angeles savings and loan, has missed two payments.
Some banks miss payments and then improve: Commerce National Bank in Newport Beach repaid its TARP funds after missing three payments, and Commonwealth Business Bank in Los Angeles has made its last two dividend payments after missing five in a row.
Pacific Capital Bancorp in Santa Barbara missed six payments before agreeing to be acquired by private investors. The takeover allowed the bank to get current on the dividends.
Pacific Coast National Bancorp in San Clemente, however, failed last year after missing two dividend payments. The failure cost the Treasury Department the $4.1 million it invested in Pacific Coast.
