Investors bank on easy money as new lenders open in L.A.

Does Los Angeles really need a new crop of business banks?

Fifteen financial institutions are expected to open their doors this fall in Southern California, driven by the easy availability of money and the success of small bank IPOs.

Most of the new banks have targeted niche markets in real estate and entertainment, with a handful focused on serving California's burgeoning Asian population.

Real estate veteran Raffi Krikorian, president of Investment Real Estate Associates in Encino, will be chairman of California Business Bank, based in downtown Los Angeles.

Another new bank generating buzz is Private Bank of California, led by veteran banker Steven Broidy, a former vice chairman of City National Bank.

Private Bank, which opens in Century City in October, may end up raising the bar for the amount of capital raised by a new bank. California United Bank in Encino raised $33.8 million when it opened in late May. In just three months of operation, it has grown its assets to $51.2 million.

Private Bank stands out because of its eclectic roster of investors that include Richard Pachulski of bankruptcy firm Pachulski, Stang, Ziehl, Young, Jones & Weintraub; Gary Stiffelman, a partner at entertainment law firm Ziffren, Brittenham, Branca & Fischer; and Bruce Spector, a senior advisor at private investment firm Apollo Management LP.

Private Bank will go head-to-head against 1st Century Bank, in Century City, while trying to poach entertainment clients from industry leader City National Bank.

Among the banks with an Asian and retail focus are First Choice Bank, in Cerritos, First General Bank, in Rowland Heights, and First Vietnamese Bank of Westminster.

The new entrants face stiff competition 2from several entrenched banks with strong ties to middle market businesses, notably Mellon 1st Business Bank and its offshoot, American Business Bank.

Mellon recently hit a milestone in amassing $3 billion in assets in 15 years, while American Business set its own record, hitting $500 million in assets in just 7 years.

Christopher Myers, chairman and chief executive at Mellon, said there will probably be a shakeout in the next few years determining which new banks will be winners or losers. "It seems everyone out there thinks they can run a bank," said Myers. "What they don't realize is this is the most competitive business environment ever for loans."

Easy money

All told, eight new business banks in Los Angeles, and another seven in the surrounding five-county area, have received approval from state regulators over the past few months and are in various stages of receiving bank licenses.

Why all the new banks? Mostly, because those that formed in the past have thrown off gobs of money to their original investors.

More than a third of California's small banks have disappeared in the past 20 years, even though the population has doubled. Most were bought by larger banks, cashing out the bank founders. Today, there are 267 banks in California, a 45 percent drop from 1985.

Ed Carpenter, founder of Irvine-based investment bank firm Carpenter & Co., the largest underwriter of banks in California, said the state qualifies as "underbanked" because it has one for every 135,000 residents, compared with the national average of one per 38,000.

"Even with all of the start-ups, every year there are more banks sold than there are banks started," he said, noting that the average bank lives just 12 years.

Meanwhile, business is booming, thanks to low interest rates that have fostered a climate of easy lending. Plus these banks can rely on the business contacts of their officers and board members to grow deposits.

"The only thing they really have to sell is their ability to service customers in a different way than a large bank does," said Nancy Sheppard, president of Western Independent Bankers, a trade group of 300 community banks in 10 Western states.

Some analysts think that with all the new openings, there is bound to be a slowdown in new bank formation, which is highly cyclical and tends to be followed by a period of mergers and consolidations--if only because there are few qualified people left to operate them.