Cathay Bancorp's NASDAQ entry marks milestone in drive to sustain rapid growth.

Cathay Bancorp's NASDAQ entry marks milestone in drive to sustain rapid growth

In an important rite of passage, Cathay Bancorp Inc., the parent company of Chinatown's Cathay Bank, recently began trading on the NASDAQ over-the-counter system.

The listing and the March formation of a holding company for the $632 million (assets) bank may allow the bank to continue its rapid growth, diversify and better compete against a legion of competition for Asian bank clientele.

Cathay, 28 years old and headquartered in a three-story building with traditional Chinese motifs, is the granddaddy of Asian banks here and has expanded rapidly since the early 1980s.

But competition is growing. A 1989 Taiwanese law which allowed private ownership of banks at home and abroad has spawned three new Taiwanese banks with offices in Los Angeles in 1990.

And the burgeoning Asian community has attracted other players over the years. "For the first 10 years we were the only bank in our community," said Cathay President Dunson Cheng. "Now there are 19 to 20 banks in our community."

Japanese banks like San Francisco-based Sumitomo Bank of California and Japan-based Tokai Bank are also attempting to muscle in on the Chinese market.

Also, Cathay lost its claim to largest Chinese bank headquartered in Los Angeles County in 1990, when it was surpassed in total assets by General Bank, which formed a holding company in 1980 and has diversified into real estate investment activities, Small Business Administration loans and, in 1990, insurance.

Cathay's Dec. 14 listing on the price quotation system will hopefully spur interest in the company's stock, said Cheng.

"A NASDAQ NMS listing will help expand our investor base, attracting the smaller investor as well as the more sophisticated institutional investor," he said.

"I think it's a good decision," said Lloyd Wu, a vice president at Los Angeles-based Wedbush Morgan Securities. "Some of their shareholders have held their stock for a long time and it's not liquid. When they want to sell it, it's very difficult; they have to make lots of inquiries. (The listing) also makes it better known to outsiders. People can read up on the bank and understand what a fine bank it is, and that can enhance the book value."

Despite the savaging bank stocks have received since June, Cheng defended the timing of the listing by noting that bank stock prices appear to be on the mend.

Wu said he recommends the stock for a long-term hold. The stock, which was trading at $16.50 to $17.50 per share, closed at $19.50 on its first day on NASDAQ.

The stock was previously traded via pink sheets, a daily publication of bid and asked prices for over-the-counter stocks.

The listing is only the latest step in a reorganization approved by shareholders in July and which management said will allow it more flexibility.

The March 1 incorporation of Cathay Bancorp Inc. will "facilitate future acquisitions of bank and savings institutions and . . . permit expansion into a broader range of financial services and other business activities than are currently permitted."

Cheng said that the bank has no immediate plans for such diversification or for acquisitions, although "we are always open to opportunities to come."

One lawyer who serves Asian and Asian-American banking clients said that the bank will likely diversify to satisfy more of the financial needs of its competitors.

That contrasts with many large mainstream banks which are selling off their nonbank businesses to focus on basic banking business.

Among the activities that a holding company can participate in -- subject to regulatory approval -- are insurance, export trading, securities brokerage, foreign exchange advisory and transactional services, consumer financial counseling, tax planning and preparation and personal property leasing.

Even without acquisitions or diversification, the bank is growing at a rapid clip, with assets increasing by nearly 18 percent from 1988 to 1989 and expected asset growth of 16 percent from 1989 to 1990.

The bank is also highly profitable, with return on average stockholders' equity of 21 percent and return on average assets of 1.77 percent for 1989, both far above industry averages.

Cathay, with six branches, continues to expand into California markets with large Asian populations.

In 1989, the bank opened a branch in San Jose, which has a large Chinese and Vietnamese population. The bank already had branches in Westminster, Alhambra, Hacienda Heights and Monterey Park, as well as its Chinatown headquarters.

State regulators have also approved proposed branch locations in Rowland Heights and Artesia.

Banks serving the Asian community have ranked among the most profitable in Los Angeles. Frankie Leung, an attorney with the downtown Los Angeles law office of Carlsmith Ball, attributed that to the continuing influx of Asians, their high rate of savings as a group and their desire to do business with institutions that understand their needs and are willing to accept alternative forms of a credit history.

While a large percentage of Cathay's loans are invested in commercial real estate -- 34.7 percent on Dec. 31, 1989 -- the bank's underwriting standards generally require that such loans be made only to borrowers in the bank's primary market area, which are Asian areas whose local economies are stronger than the national and California markets.

That has helped keep nonaccrual loans to 2 percent of total loans as of Sept. 30, compared to an average of 2.12 percent for state-chartered banks.

Tight management has kept expenses down, Leung said. "They don't have people who squander money. They are not flashy; they're very conservative."

One challenge for the bank, however, is that competition has pushed up the cost of money and slowed the rate of deposits, by management's own admission.

Cathay remains well-capitalized, however, with its risk-based capital and total capital far above regulatory requirements.

The fact that banks have become akin to trophies for Taiwanese investors has led to some buyout speculation.

"There is a strong Asian interest in acquiring a well-managed institution. People are always coming to see (local ethnic Chinese banks) to talk to them about selling, and the offers are very high," said Leung.

Cheng said that he has not received any offers for the bank and has no interest in selling it.