An eighth 2008 banking deal fell apart Monday when Center Financial Corp. in Los Angeles said its $65.2 million agreement to buy First Intercontinental Bank in Doraville, Ga., is off.
Each side blamed the other for the breakup, but neither specified what happened.
The $2.1 billion-asset Center said First Intercontinental had terminated the deal they announced Sept. 18.
Though he declined to discuss the dispute, Lonny Robinson, Center's chief financial officer, said in an interview, "the current credit crunch and liquidity issues" in the industry make it unlikely that his company would seek another bank deal in Atlanta or elsewhere.
"I don't know if there is a landscape for M&A work," he said.
The $220 million-asset First Intercontinental accused Center in a written notice of breaching the merger agreement and demanded $3.1 million in damages. Calls to First Intercontinental were not returned.
Center said in its press release that it would not pay the fee because First Intercontinental had breached the agreement.
The deal, which would have been the first in Center's 21-year history, is the latest to come undone in a difficult environment for the banking industry.
This year's eight aborted deals compare with 13 failed transactions in all of 2007 and 15 in 2006, according to SNL Financial LC in Charlottesville, Va.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research Corp. in Nashville, speculated that an increase in credit-quality problems at First Intercontinental had played a role in the deal's collapse.
First Intercontinental's noncurrent loans to total loans rose to 1.04% at Dec. 31, from 0.68% a year earlier, mostly due to trouble in its construction and land development portfolio, according to the Federal Deposit Insurance Corp.
In addition, several key bankers, including First Intercontinental's former CEO, Daniel C. Lee, were supposed to have joined Center after the deal closed to help expand its Atlanta operation but had left the company, Mr. Rabatin said. (Mr. Lee resigned in January, citing family issues.)
Since the situation had changed so "dramatically," Center was probably trying to renegotiate the pricey deal — for three times book value — Mr. Rabatin said. And this could have led First Intercontinental to terminate the agreement.
There are pros and cons to Center's losing the deal, he added. "It would have been a dilutive acquisition, so it is good that it is getting cancelled," he said. "But at the same time, it would have been good for Center to have expanded in Atlanta. Probably, next, they would have gone up the East Coast."
On Monday, Center's stock rose 3.2%, to $9.06, while First Intercontinental's stock sank 10.5%, to $17. Center's stock price had fallen roughly 50% since the September deal announcement.
Center, one of roughly a dozen Los Angeles banking companies targeting Korean-Americans, imitated several others in pursuing acquisitions in parts of country that have similar ethnic communities. In recent years the $2.2 billion-asset Nara Bancorp and the $2.2 billion-asset Wilshire Bancorp Inc. have bought banks in New York, and the $3.9 billion-asset Hanmi Financial Corp. has said entering the New York market is among its goals.
Mr. Rabatin said no deals are likely soon in the Korean-American banking sector, unless regulators force one of the poorer performing start-ups in Los Angeles' Koreatown to sell, for example, the $142 million-asset First Standard Bank. The two-and-a-half-year-old bank lost $4.1 million last year and $1.8 million in 2006. First Standard did not return calls Monday seeking comment.
But the rocky stock market and credit concerns have made dealmaking in the industry more challenging lately.
Among the deals terminated last month was TierOne Corp.'s sale to CapitalSource Inc., a Chevy Chase, Md., real estate investment trust. CapitalSource announced the $652 million deal in May, but the deal fell apart as both companies' market values fell and TierOne's credit problems mounted.
On March 3, TierOne announced that it had lost $18 million in the fourth quarter as nonperforming loan volume more than tripled from a year earlier, to $128.5 million, or 4.32% of total loans.
