East West Bancorp Inc. has persuaded the Greenlining Institute to drop its protest of a pending acquisition by pledging $11.5 billion to community reinvestment activities over the next 10 years.
As a percentage of assets, the pledge — 10% of East West's assets every year for a decade — is the largest ever for community reinvestment by a U.S. banking company, the Berkeley, Calif., advocacy group said.
Robert Gnaizda, Greenlining's general counsel, said the $10.7 billion-asset East West is also the first midsize banking company to commit to a 10-year plan for meeting its Community Reinvestment Act objectives.
"This puts tremendous pressure on other midsize banks to also develop long-term CRA plans, because they'll now be at a competitive disadvantage," Mr. Gnaizda said.
Greenlining had protested East West's plan to buy the $533 million-asset Desert Community Bank in Victorville, Calif., because both companies have room for improvement in their CRA ratings, he said. In its exam last year, East West got an "outstanding" rating for its lending, a "low satisfactory" in the service category, and a "needs to improve" in the investment category. The company's overall performance was rated "satisfactory."
Last month Dominic Ng, East West's chairman, president, and chief executive officer, called Greenlining's charges that his company was remiss in key CRA categories "totally off base."
He said in an interview Monday that the pledge is "business as usual" for East West. "For the past 10 years 10% of our lending has been CRA-related," going to affordable housing and community development in low- and moderate-income communities.
More than 95% of the $11.5 billion commitment would be in loans, so the plan is not a major departure from what East West has done in the past, Mr. Ng said. The lending is actually an extension of the Chinese-American banking company's strategy to reach more "mainstream" customers.
"But we will do whatever it will take to get a 'high satisfactory' rating for investments and services, so we'll never get another protest letter again," he said.
He attributed any shortcomings in its CRA ratings to poor documentation, and he expects the 10-year plan to remedy that problem. East West switched regulators recently, to the Fed from the Federal Deposit Insurance Corp., and was not as familiar with the type of documentation that the Fed requires for investments and services, he said, though that is "still no excuse."
East West's plan calls for it to be among the top three midsize California banking companies in providing loans for affordable housing and community development and investing in underserved communities in its markets. The plan also calls for more loans and technical assistance to small, minority-owned businesses (including Chinese-American-owned ones), more philanthropic commitments to underserved communities, and more contracts with minority-owned suppliers.
Mr. Gnaizda said that even though Greenlining's protest letter prompted East West to develop the plan, the company was being "very cooperative" in making its commitment. "They understand this is in their best interests, because they'll gain a larger market share if they put this plan into effect."
Giants like Bank of America Corp. and JPMorgan Chase & Co. have committed higher dollar amounts when making much larger acquisitions, he said. Bank of America pledged $750 billion when it bought FleetBoston Financial Corp. in April 2004, and JPMorgan Chase pledged $800 billion when it bought Bank One Corp. three months later.
But East West's pledge is impressive for the company's size, Mr. Gnaizda said.
East West said in April that it would buy Desert Communityfor $142.6 million. After the deal closes this quarter, East West would have about $11.5 billion in assets.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research Corp. in Nashville, agreed that the CRA plan would benefit East West.
Making more loans to underserved communities and other minority-owned businesses would help the company maintain its growth, he said. "It's the law of larger numbers. The bigger you get, the more difficult it becomes to grow at past growth rates."
Including acquisitions, East West's assets have risen 34% over the last five years. Excluding acquisitions, its assets have risen 15%.
Desert Community would be the sixth bank East West has bought since 2000, but only the second that does not target Asian-Americans. In 2001, East West bought the $110 million-asset Prime Bank, a commercial bank in Los Angeles.
Mr. Rabatin said the pending acquisition would make East West the second-largest banking company based in Southern California, behind the $15.3 billion-asset City National Corp. in Los Angeles. "So I think you'll see them continue to look at different lending areas to look for more volume, and this plan will really help," he said.
