A quest to tap local markets has inadvertently made Grandpoint Capital Inc. one of the more culturally diverse banking companies in the country.
Grandpoint on Friday bought the failed First Vietnamese American Bank in Westminster, Calif., from the Federal Deposit Insurance Corp. The company's first bank acquisition was its June purchase of Santa Ana Business Bank, a Hispanic-oriented institution. Such deals have caught the attention of analysts because minority-focused banks historically are sold to similar competitors.
"Generally speaking, you find the best synergies and cost savings by way of consolidation within the niche," said Aaron James Deer, an analyst at Sandler O'Neill & Partners LP.
The trend is prevalent among Asian-American banks, which have a competitive footing in their California customer base. Analysts often point to East West Bancorp Inc.'s purchase of the failed United Commercial Bank in November 2009, which locked in the Pasadena, Calif., buyer as the largest Chinese-American bank in the country, with $20.4 billion of assets. Cathay General Bancorp in Los Angeles is a distant second, with $11.2 billion of assets. Deer said East West has also been able to reduce personnel and occupancy costs by more than 30% in the past year.
Don Griffith, the chairman and chief executive of Grandpoint Bank and its parent, said the company's business plan does not revolve around the ethnicity of the five bank deals it has made in the past six months. Buying the $48 million-asset First Vietnamese does, however, continue a strategy of building a multibillion-dollar community bank by acquiring the smallest strugglers and keeping their best executives.
"I don't care what the nature of the customer base is so long as there is a supportive community there … and talented people to serve them," Griffith said in an interview Tuesday. "The real differentiator is the talent at the bank. That is something the big banks miss over and over again."
First Vietnamese's market "is fascinating," Griffith added. "It's a vibrant community, and it's a very tight-knit community, with a lot of entrepreneurs who live in a small geographic area."
Deer said such niche banks are also attractive acquisition targets because they historically have higher growth rates. Most minority-focused banks are also known to enjoy a loyal customer base, which can make them appealing to any banker.
Despite this, the FDIC said it had two bids by Oct. 29 for the one-branch First Vietnamese, after contacting 279 potential bidders.
Grandpoint Capital, which was formed this year with $335 million in capital, is among a very small group of Pacific Coast institutions that have been willing and able to roll up banks in their market, much less win a failed bank.
"It is good to see someone who is heavily capitalized with the ability to grow … that qualifies with the FDIC as a failed-bank bidder," said Ralph "Chip" MacDonald, a partner in the Jones Day law firm in Atlanta.
California has lacked the well-funded equity-backed groups that have moved aggressively in states like Florida, Georgia and North Carolina. Private-equity groups are interested in California, but the few such deals closed may be due to "a disparity between the expectation of the bank's pricing at the board and what the private-equity guys want to come in at," said Rick Levenson, the president of San Diego's Western Financial Corp.
Levenson said he sees signs of interest picking up. Banks and investor-backed groups are making acquisitions at the bottom of the credit cycle whereas before they "wouldn't touch it with a 10-foot pole," he said. "At the end of the day, I think it is beneficial for the industry to clear this stuff out."
Another California group, with a different strategy, broke through when about 25 institutional investors led by Stephen H. Gordon recapitalized and took over Bay Cities National Bank in Irvine with $460 million in capital on Sept. 30. The bank was renamed Opus Bank, and Gordon became the chairman, chief executive and president. Analysts say the deals for distressed banks are a good sign in a state that has a lot of cleanup to do in the banking sector.
For its part, Grandpoint may not be done. It still has about $200 million in capital remaining after its five bank deals, so it has plenty of room to run. In addition to its $75 million recapitalization of Santa Ana, Grandpoint has deals for First Commerce Bancorp in Encino, Calif.; and a combined deal in Tucson, Ariz., for Southern Arizona Community Bank and the main-office operation of Bank of Tucson owned by Capitol Bancorp Ltd.
Though these seem like a lot of purchases to digest at once, Griffith said he is sticking with the small-step strategy the executives at Grandpoint are experienced in using. Griffith and chief operating officer, Deborah Marsten, are well versed in growing through small acquisitions in Southern California; they built First Coastal Bancshares that way before selling it to CVB Financial Corp. in early 2007 for $35 million.
Griffith said he expects the purchases of First Commerce and Southern Arizona to close shortly. The deal involving Bank of Tucson should be completed next year, at which point Grandpoint Bank would have more than $1 billion of assets.
Griffith said he believes opportunities to buy large banks in California through the FDIC have passed, though Grandpoint would still bid on small failed banks. "We prefer bite-size acquisitions where we don't make mistakes, unless" it is covered by the FDIC, he said. "The tortoise wins in banking over the hare just by growing stead[il]y."