Chinese banker saw opportunity in real estate crash.

At 65, Li Yu describes himself as the "old man" of L.A.'s Chinese banking community, but his appetite for risk and innovation has hardly been stodgy.

Fifteen years ago, when L.A. banking was in the middle of the real estate crash, Yu convinced his friends to pony up more than $20 million to start a Chinese bank that also would target mainstream customers. It was the largest initial capitalization for a state-chartered bank in California history at the time.

Born in China. Yu earned his bachelor's of science in Industrial Management from the University of Taiwan. He came to L.A. in 1963 because "it was very fashionable back in those days for Asian students to seek post-graduate degrees in the United States, and I was no exception."

Yu left UCLA in 1968 after earning an M.B.A. He worked as an accountant for eight years, mostly with Deloitte and Touche, and then bolted to become chief financial officer at USA Petroleum. "I changed industries because the salary was high and starting as a CFO for a small emerging oil company was a coveted job," he said.

Yu's exposure to banking began when he became a founding director of California Pacific National Bank in 1979. Three years later he was elected chairman. By 1989, when L.A.'s housing slump was at its worst, Yu started looking for a Chinese bank to acquire.

Preferred Bank's target market remains the same as it was at its founding, only more so. Sixty percent of deposits are from Chinese firms or individuals while 75 percent of lending is to the mainstream. Four of the bank's eleven branches serve mainstream clients, five target Chinese-Americans: two blur all ethnic lines.

Yu took Preferred Bank public last year because he wanted to create an exit strategy for his investors. "Most of our employees have had stock options dating back to 1993," Yu said. "With stockholder equity now at about $140 million, it's been great for retention and recruitment."

Chinese community banks have a history of understanding their client base, according to Yu, unlike some other Asian banks that have failed. "If you look at the growth of Chinese and Vietnamese businesses from downtown L.A. east through Monterey Park, and now Rowland Heights and Chino, you'll see they've all been funded by this network of Chinese banks," Yu said.

The challenges in ethnic banking are numerous. A slow-down in housing and increased competition from the mainstream--Citibank touts its high interest rate deposits almost daily in Chinese newspapers--are two ongoing problems for the Preferred Bank's chairman.

Why, then, has Li Yu stayed in the game so long? Community building that is unparalleled in most other industries.

"Banks are facilitators, we borrow money from our deposit clients, pool it together, and lend it out to the people who can create jobs and provide valuable services, like hospitals, housing, public works, etc. If we do it right, our growth parallels the growth of our community," he said. "It's quite rewarding."