Asian boom fuels creation of new banks: lenders serve needs of immigrant community.

A new crop of ethnic Chinese community banks has sprung up in Los Angeles, fueled by burgeoning trade with China and Taiwan and a jump in new immigrants from these regions into Southern California.

The increased merger activity could lead some banks to sell out to larger financial institutions in mainland China or Taiwan. This perception may also be inspiring entrepreneurs to start new banks, in hopes of cashing out later.

"Sooner or later, the banks from China will have to come in," said Henry Fields, a partner at Morrison and Foerster LLP in Los Angeles. "Some in the Chinese community may be thinking that if they dress themselves up, they may be targets five or 10 years down the road."

Several new ethnic Chinese banks have been formed in the past two years, including American Premier Bank in Arcadia. First General Bank in Rowland Heights and Inter-Business Bank in City of Industry.

Growth shifts south

These are all one-branch banks that cater to export-import businesses. Each is trying to ramp up its assets and expand branches over the next few years to be considered potential targets.

Bankers point out that the growth has shifted away from Northern California, where many of the state's large ethnic Chinese banks formed in the 1970s, toward Southern California, which has drawn the bulk of new immigrants and trade from China and Taiwan.

Currently, there are as many as 45 Asian-American banks in Southern California, compared with 13 in San Francisco and just one in San Diego, according to the state Department of Financial Institutions.

A rash of merger activity in the past five years by, the largest banks--Cathay General Bancorp Inc. of Los Angeles, East West Bancorp Inc. of San Marino, and United Commercial Bank, a unit of UCBH Holdings Inc. in San Francisco--has helped spawned new banks, which could eventually be acquisition targets.

Gary Steven Findley, a principal at Findley Associates, which helped in the recent formation of First General Bank, said there are still openings in the market for ethnic Taiwanese banks.

"One of the reasons that a bank like First General Bank makes sense is that a lot of the Taiwanese don't speak the same dialect as the mainland, so there's still quite a bit of opportunity out there," he said.

The mergers are a factor in some of the bank formations. Several of the founders of First General Bank, for example, hailed from First Continental Bank of Rosemead, which was snapped up last year by UCBH for $52 million. That came after UCBH, with $6 billion in assets, swallowed Bank of Canton in 2002 for $220 million.

'Not that easy'

Alan Thian, former chairman and chief executive of First Continental who is now executive vice president and regional director in Southern California for United Commercial Bank, cautioned that new banks must operate in a tough regulatory climate.

"Everyone that forms a bank has good intentions of serving the community," he said. "But it's not actually that easy to run a bank and it's not easy to sell a bank either."

United Commercial is set to open its first branch in September in ShenZhen, a city in Southern China that is a major manufacturing spot for Taiwanese companies. Thian believes that while there is room for new banks, larger institutions will increasingly control the market by expanding with branches into China.

"Everyone is aiming at the trade not just between the U.S. and the mainland, but also Taiwan, which has shifted so much of their manufacturing to China," he said.

Easier to buy

Meanwhile, East West Bank, with $4.6 billion in assets, has expanded dramatically in Southern California with the purchase of five small banks since 1999.

It is set to complete its purchase this month of Trust Bancorp of Monterey Park for roughly $33 million in stock. It bought First Central Bank in 1999 for $13.5 million; American International Bank in 2000 for $33.1 million; Prime Bank in 2001 for $14.5 million; and Pacific Business Bank of Santa Fe Springs in 2003 for $25 million.

Julia Gouw, chief financial officer at East West, said the overall banking industry has seen a rash of mergers and acquisitions in the past five years.

"Many of the new banks that get a good track record have ended up being sold and have made a very good return for their investors." said Gouw, who believes the newer crop may see a different type of buyer down the road.

"There could be a potential for foreign banks that wanted to come into this market because it would be a lot easier to buy an existing franchise than to start a new one," she said. "And it would be a good exit strategy to be acquired by a bank from mainland China or Taiwan."

Growing Market
More ethnic Chinese banks are joining the local fray.

                                               2003 Assets
Bank                           Location         (millions)

Cathay Bank                  Los Angeles           $5,535
East West Bank                San Marino          4,047.5
China Trust Bank (U.S.A.)      Torrance           1,797.6
Preferred Bank               Los Angeles            761.9
Saehan Bank                  Los Angeles            292.3
Evertrust Bank             City of Industry         253.1
Omni Bank                   Monterey Park           198.3
Los Angeles Nat'l. Bank       Buena Park            191.3
Guaranty Bank of Calif.      Los Angeles            139.4
United Pacific Bank        City of Industry          90.4
Eastern Int'l. Bank          Los Angeles             90.3
Continental Bank of        City of Industry          25.6
  America
New Entrants
InterBusiness Bank         City of Industry        $146.4
American Premier Bancorp       Arcadia               32.6
First General Bank         Rowland Heights         N.A. *

* Not available; filed formation papers in July.

Source. Federal Deposit Insurance Corp.