FDIC exam finds 'deficiencies' in Cathay Bancorp's Safeguards.

WHEN it comes to Cathay General Bancorp, investors apparently figure at what they don t know won't hurt them.

In a cryptic filing with the Securities and Exchange Commission on June 18, Cathay General said its board had signed a memorandum of understanding with the Federal Deposit Insurance Corp. after a routine examination found "certain deficiencies" in the bank's compliance with the Bank Secrecy Act.

Wall Street analysts acknowledged that Cathay needs to upgrade its safeguards against money laundering. The bank specifically has trouble keeping track of cash transactions of $10,000 or more, particularly those that are transferred among several accounts by individual customers. However, there's very little detail available on the extent of the problem. The bank has 90 days to comply with the act.

"The issues involved in the agreement appear fairly mild, in our opinion," stated analysts Brian Conn and Joe Morford at RBC Capital Markets in San Francisco, in a report issued last week.

Cathay plans to hire an independent consultant, enhance internal controls, dedicate a portion of its staff to compliance issues and to regularly adopt employee training on compliance, the company said in its SEC filing.

Perry Oei, Cathay's general counsel, would not discuss specifics of the bank's anti-laundering procedures other than to say: "We made our disclosure in the 8-K."

Analysts estimate it will take $100,000 to improve compliance, which is not expected to have an impact on earnings. In addition, Cathay disclosed that the memorandum with the FDIC could limit or delay its ability to obtain regulatory approval for any expansion plans. Currently, the company is focused on digesting its acquisition of GBC Bancorp in October 2003.