GBC Bancorp of Los Angeles hopes that clamping down on the underwriting practices of its New York loan production office will solve its recent credit quality problems.
However, outsiders say that the $2.6 billion-asset company may not be out of the woods just yet.
GBC this week announced that its second-quarter losses were more than twice as large as it first reported because of another bad loan from New York, and some analysts say further chargeoffs appear likely.
Last month the parent of General Bank disclosed that lax underwriting procedures in the New York office had led to more than $30 million of chargeoffs this year. Much of that was related to loans made to commodities brokers - specifically some New Jersey metals traders who were arrested in May for allegedly defrauding nine banks out of more $600 million through a Ponzi scheme.
GBC has fired some of its New York lenders and prohibited the office from authorizing unsecured loans of $5 million or more. The office will still be allowed to approve secured loans of up to $10 million.
Peter Wu, GBC's president and chief executive officer, said in a conference call in late July that its loan troubles were over and that he was "confident" that the $4 million it had reserved for loan losses for the third quarter and for the fourth quarter was appropriate.
However, this week GBC said that it would charge off a $14.5 million loan made in New York to a commodities export trader. The chargeoff more than doubled the company's second-quarter net loss, to $8 million, and forced it to increase loan-loss provisions for the second quarter by $7.2 million.
In an interview on Wednesday, Peter Lowe, GBC's chief financial officer, said that it would provide further details next week, when it files its earnings restatement with the Securities and Exchange Commission. However, some analysts say it seems certain that GBC will have to increase its second-half reserves beyond $4 million per quarter.
In a research note published Wednesday, Charlotte A. Chamberlain and Peter G. Eppleider, two analysts at Jefferies & Co. Inc. in Los Angeles, wrote that GBC's losses for the second half of this year could exceed $24 million.
"We believe that this restatement is a clear indication that GBC is facing a crisis in risk management at the underwriting level," the analysts wrote. "There is a good chance that further writedowns may be necessary."
GBC had already charged off two loans worth a combined $27 million that it had made to the New Jersey traders. Mr. Lowe said Wednesday that the latest chargeoff was not related to the alleged Ponzi scheme.
Mike Niehuser, an equity analyst for RedChip Cos. LLC in Portland, Ore., said that GBC was going too easy on the New York office.
"In my mind, the underwriting approval limit of $5 million for the New York office is still too high, because the market is looking for management to be all over everything coming out of that office," he said.
Still, the credit problems have been isolated to New York and are not likely to spread to its California operations, Mr. Niehuser said. "The core part of their business in California is very strong."
