China Minsheng Banking Corp. is weighing a plan to increase its stake in UCBH Holdings Inc., a California lender facing a regulatory deadline to bolster capital, said two people briefed on the matter.
Minsheng, China's first privately owned bank, plans to seek U.S. regulatory approval to boost its holding in UCBH, of San Francisco, the holding company for United Commercial Bank, to at least 50% from 9.6%, the people said, declining to be identified because the talks are private.
The Beijing bank "has been the vanguard inside China in terms of trying to be more consumer oriented," said Daniel Rosen, principal of the Rhodium Group in New York.
"It doesn't surprise me they would contemplate doubling down their position in a second-tier niche American bank like UCBH. It would be a good incremental step for them."
Minsheng may also be seeking to protect its existing investment in UCBH from further deterioration. It has plowed $126 million into UCBH since October 2007 and is the company's biggest shareholder. UCBH's stock has lost 97% since then, cutting UCBH's market value to $79 million.
UCBH had $12.7 billion in assets and $7.9 billion in deposits at the end of June, according to the Federal Deposit Insurance Corp. The lender received $298 million from the Troubled Asset Relief Program in November. Minsheng would need approval from regulators to boost its stake, said James Barth, a former chief economist at the Office of Thrift Supervision.
Minsheng plans to push for greater management control of UCBH and will seek to help rid the lender of some of its nonperforming loans, the people said, adding that details of the rescue are still being worked out.
Regulators "look to see who is exerting control over the bank," said Barth, who is now a professor of finance at Auburn University in Alabama. "It all has to do with the regulatory authorities determining if a bank is going to operate safely and soundly. You want to make sure that a foreign bank is in good financial condition."
Li Limin, a press officer at Minsheng in Beijing, declined to comment, as did Steve DiMattia, a UCBH spokesman.
UCBH said Sept. 8 that it will restate second-quarter earnings and boost provisions for loan losses to as much as $390 million, up from an earlier estimate of $330 million, after a probe found that some officers improperly modified loans and misrepresented data to auditors. Thomas Wu stepped down as UCBH's chief executive as a result.
Two days later, UCBH was given 60 days by the Federal Reserve to come up with "the source and timing of additional funds necessary" for the holding company and the banking unit.
Even with Minsheng's added investment, UCBH may not have enough capital to meet regulatory requirements, according to Lana Chan, an analyst at BMO Capital Markets. "Given the market cap of $70 million, a 50% stake probably wouldn't raise enough to fill the capital hole we are estimating," she said. Chan estimated that UCBH needs to raise about $600 million of common equity to bring its Tier 1 capital ratio to 12%.