UCBH Holdings Inc. of San Francisco has struck its first whole-bank deal for a New York banking company, and the acquisition would help it realize its longtime goal of expanding in mainland China.
UCBH is buying the $322 million-asset CAB Holding LLC and its subsidiary, Chinese American Bank, for $130.7 million in cash and stock. The deal was announced Thursday.
CAB has three branches in New York, where UCBH has five branches. Jonathan Downing, UCBH's director of corporate development and investor relations, said the added heft would significantly enhance his company's brand recognition and its ability to build market share in the city.
UCBH, which targets Chinese-Americans, would also reach the asset size it needs to achieve another long-standing goal - branches in mainland China.
UCBH's fourth-quarter organic growth, a recent acquisition, and buying CAB should combine to put UCBH's assets over $10 billion, the amount Chinese regulators require for granting a full banking license there, Mr. Downing said.
UCBH ended the third quarter with assets of $8.4 billion, and on Dec. 29 it bought the $665 million-asset Summit Bank Corp. of Atlanta. Mr. Downing said his company would not report fourth-quarter numbers until Jan. 25, but the Summit acquisition alone put its assets over $9 billion.
UCBH, the parent of United Commercial Bank, has representative offices on the Chinese mainland but cannot take deposits or make loans there, he said.
He confirmed that the company is "looking at acquisitions" in China and said it hopes to have full-service branches there this year.
"We do have plans for China," Mr. Downing said. "It's something we've been working on for 18 months."
The price is about five times the seller's tangible book value but 2.2 times its adjusted book value.
Analysts said the asking prices for Asian-American banks across the country have climbed as UCBH and several of its ethnically focused competitors look to expand beyond their intensely competitive home turf in California.
Last year UCBH lost a five-month bidding war for New York's Great Eastern Bank to Cathay General Bancorp in Los Angeles. The $101 million price worked out to about three times the seller's tangible book value, said Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Research Corp. UCBH's $175.5 million cash and stock deal for Summit worked out to 3.4 times the tangible book value, he said.
"The expectations of sellers for the Asian banking market have gotten pretty high," Mr. Rabatin said. "So for UCBH to be able to come to terms with one of the banks in New York - which they've been trying to do for a very long time - that's impressive."
UCBH, which has 56 branches in all, has been in New York since 2002, when it bought a Brooklyn branch. It has added four more branches since then, including one it opened a few weeks ago.
James Abbott, an analyst with Friedman, Billings, Ramsey & Co. Inc., said that the price for CAB was a little high but that the acquisition should ultimately pay off.
UCBH needed to bulk up in New York to bring in more revenue and help defray the fixed costs of operating there, Mr. Abbott said. "If this were a manufacturing company, I would say they are running at 50% capacity of what they could be doing in New York," he said.
CAB would bring the added benefit of a 56% loan-to-deposit ratio, giving UCBH room for margin expansion, Mr. Abbott said.
"This gives UCBH about $700 million they can use to make loans without having to raise additional deposits," he said. "That's not a huge amount, but still it's additional capacity."
Mr. Abbott said that would be particularly helpful to UCBH, because competition for deposits in ethnic communities is more intense in California than in New York.
He pegged CAB's total cost of deposits at 2.4% and UCBH's at 3.6%.
Mr. Rabatin said the price for CAB is "reasonable" after adjusting the book value to take into account the real estate it owns for its branches. "They've got some real estate on the books for about $10 million, and it's worth $30 million," he said.
The deal is expected to close in the second quarter.
