Does the CEO Resignation at BBCN Mean It Will Buy Hanmi?

A seismic shift has hit Korean-American banking for the second time in a week.

BBCN Bancorp (BBCN), the largest Korean-American bank, announced late Monday that Alvin Kang, its president and chief executive, would step down at the end of the month.

Kang's resignation followed news that Hanmi Financial (HAFC), the second largest Korean-American bank, is courting potential buyers. With BBCN viewed as a potential suitor, some observers concluded that the events at the two Los Angeles companies are related.

"There is a lot of drama going on in the Korean-American banks," says Julianna Balicka, an analyst at KBW's Keefe, Bruyette & Woods. "For BBCN, its ability to pick up Hanmi is priority No. 1. To me, [Kang's resignation] is an indication that the conversations with Hanmi are getting more serious."

Leadership changes ahead of merger talks are common, observers say. In fact, they may be on the rise as banks — many led by aging executives who delayed their departures because of the economic downturn — confront tough succession issues. Kang is 68 years old.

"It is frequent that a CEO of a bank that is poised for expansion through acquisitions would announce his retirement," says Rod Taylor, president of the executive recruiting firm Taylor & Co. "And acquisitions are often decided because of the fact that a capable, qualified leadership team can be expected to join. I think it is becoming an important part of M&A because there are so few capable leaders."

Kang and members of the board were not available for an interview Tuesday, a spokeswoman for the $5.3 billion-asset BBCN said.

Though Kang's departure might make a deal for the $2.8 billion-asset Hanmi easier, analysts say, Hanmi would not provide an obvious long-term leader as several of its top managers, including CEO Jay S. Yoo, are nearing retirement.

Still, Kang's future appears to have been an important factor in his sudden announcement. Kang resigned after a clash with the board, several sources said. He is not under contract, and the sources say he was seeking a commitment longer than the board was willing to give him.

Kang had completed the merger of the $3 billion-asset Nara Bancorp and the $2.3 billion-asset Center Financial into the new company, BBCN. Under his direction, the company also announced in October that it would acquire Pacific International Bancorp (PIBW) in Seattle. Late last month, he told American Banker he was ready to make BBCN the dominant player and was focused on strategic growth.

The board did not see him as the long-term leader, several analysts said. The analysts applauded Kang's integration but said his departure, however abrupt, was inevitable.

"Al was the right person to have in there during the regulatory approval process and leading it through the integration, and I think it makes sense for the company to look for someone to lead the growth over the next few years of the company," says Gary Tenner, an analyst at D.A. Davidson. "It is not a shock."

As a former chief financial officer and a career accountant, Kang was more analytical and perhaps more conservative than his board may have wanted, analysts say. The board likely wanted someone more "big picture-oriented," says Timothy Coffey, an analyst at FIG Partners.

Kang, who is Korean-American and was born and raised in Hawaii, doesn't speak Korean. Though the language barrier has not stopped him from rising to the role of CEO of the largest Korean-American bank, it could impede a Hanmi deal, Balicka says. In her estimation, that was likely the driving factor of his stalemate with the board.

"Language was not part of the equation with Nara and Center because both were fairly well bilingual. Hanmi is not," Balicka says. "The biggest detriment was that Al didn't speak Korean."

BBCN said it would engage an executive recruiter to help it identify candidates. In the meantime, the board established an executive council headed by Bonita I. Lee, its chief operating officer. Lee was also named acting president.

The pool of possible candidates is small, Balicka says. She sees Lee, who has been with BBCN and Nara for two decades, as a potential candidate for the job. Others say Chairman Kevin Kim might have aspirations of becoming more involved in day-to-day management.

While Hanmi's Yoo, who is in his mid-60s, is an unlikely long-term candidate, he could be engaged to oversee the company if BBCN agrees to buy it.

"The board likely already has an idea of who they want to hire," Coffey says. "I think something will happen within 90 days."

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