GBC Bancorp, a Los Angeles bank that is trying to expand beyond its Taiwanese roots, suffered a setback when the Federal Reserve rejected an acquisition plan.

The Fed this month denied GBC's proposed acquisition of First Public Savings Bank, Los Angeles, for reasons that are still unclear.

GBC, owner of the $1 billionasset General Bank, hoped that the First Public acquisition would be the beginning of a strategy to capitalize on the consolidation wave expected to sweep the state's community banks. The Fed's rejection of the merger plan could hamper expansion efforts down the road.

"We did ask them to withdraw their application," a spokesman for the Federal Reserve Bank of San Francisco said of the merger. "As for the reasons, you'll have to ask the company."

Companies, Fed Don't Agree

But neither company disclosed specifics about the Fed's action.

"We do not agree with our regulators' recommendation," said GBC chairman and chief executive Li-Pei Wu. "But [we] recognize the difficulty of obtaining Federal Reserve approval in the current regulatory environment."

In a written statement, GBC said the Federal Reserve had recommended that GBC not pursue its application to acquire the $250 million-asset First Public, but instead focus its management and financial resources on its subsidiary, General Bank.

Satisfactory CRA Rating

The bank has had Community Reinvestment Act problems in the past, but currently has a satisfactory rating from the Federal Deposit Insurance Corp. A spokesman for General Bank declined to explain further.

In 1993, GBC earned a 1.3% return on assets and a 14.47% return on equity, slightly down from 1992 but well above the averages in its peer group in California.

The performance is even more unusual given that 26% of GBC's loans are in commercial real estate, the sector hardest hit in California's recession.

Growth During the Recession

GBC, however, has been growing significantly during the recession, and one analyst speculated that the Fed was uneasy with its pace.

In size, GBC grew 11% in 1993. It opened three branches, bringing its total network to 12, and plans to open five more this year in northern California.

In its 14 years, General Bank has focused primarily on the Taiwanese community in California, especially those with family or business ties to the other side of the Pacific. Though its stock is widely held, it is run by first- and second-generation Asians.

In the last two years, it has stated publicly its desire to serve a broader section of the Los Angeles community, especially other ethnic minorities.

The First Public acquisition would have pushed GBC's assets up 25% to $1.25 billion.

First Public had its own network of branches and would have functioned primarily as GBC's retail mortgage bank. GBC planned to pay $38.3 million in an all-cash deal.

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