NEW YORK — Shares of UCBH Holdings Inc., a San Francisco-based bank catering to the Chinese community, fell as much as 13% Monday after a D.A. Davidson analyst lowered his target price by 6.7% and cut his investment rating on the stock to neutral, citing a decline in bank valuations in recent weeks.
Keefe, Bruyette & Woods analyst Julianna Balicka also cut her target price for UCBH, the holding company of United Commercial Bank, though her reduction was by a much larger 21%. Balicka also now expects the company to post a loss for the fourth quarter, as well as for 2008 and 2009, compared with prior expectations for profits in all three periods.
The moves helped send shares of UCBH down 11% in recent trading to $5.94. Earlier, the stock hit an intra-day low of $5.81, returning the shares to where they were trading just over a week ago.
A UCBH spokesman declined to comment for this article.
The decline in UCBH's shares comes on a day when bank stocks in general have been in the red, as investors entered the first full week of 2009 worried a fourth-quarter loan-loss warning from Synovus Financial Corp. may be indicative of what's to come from the entire sector. Also pressuring bank stocks, Fox-Pitt Kelton issued a 2009 bank outlook that listed a number of concerns, including that credit issues are "still in the early innings."
In a Monday note to clients, D.A. Davidson analyst Chris Stulpin — who, unlike Balicka, is still expecting UCBH to post profits for its latest quarter, year and 2009 — called UCBH's earnings potential "promising" and referred to its China presence as "a source of strength."
Despite that, Stulpin lowered his target price for UCBH while raising his 2009 loan-loss provision expectations for the bank to $120 million from $95 million, citing the weakening banking environment.
Stulpin said his target price for UCBH "no longer provides substantial upside," noting that bank valuations have waned in anticipation of potential credit issues related to commercial real estate, and amid credit costs related to land and development loans.
Still, Stulpin maintained that UCBH has "ample capital," and added that its China presence "will help materially diversify earning streams post economic cycle." Accordingly, Stulpin said UCBH "remains a strong and attractive franchise."
KBW's Balicka revised her earnings forecast for UCBH and a number of other companies in the Asian-American banking sector, citing "a noticeably weaker economy, accelerated credit costs, and weaker margins as a result of the most recent rate cut."
"Given our assumptions for margin and credit, we find little relief to bank earnings, except perhaps through securities gains," Balicka wrote in her note, as she downgraded her rating on Nara Bancorp Inc. to market perform and cut the shares of Cathay General Bancorp and East West Bancorp Inc. to underperform. All are California-based banks catering to the Asian-American community.
Shares of Nara were down 12% in recent trading to $8.56, while Cathay slid 4.7% to $22.22 and East West Bancorp fell 6.1% to $15.06.
Still, Balicka added, "When the operating environment again 'normalizes' it is our opinion that the quality of the management teams, franchise strength, and the stickiness of an ethnically focused customer base will pull Asian-American banks toward relative better performance than California community bank peers."
