WASHINGTON — Officials announced the elaborate closing of San Francisco-based United Commercial Bank Friday night in a deal involving both U.S. and Chinese regulators and a buyer poised to assume the bank's operations immediately.
Pasadena-based East West Bank agreed to take over the $11 billion bank's U.S. operations, as well as a branch in Hong Kong and UCB-China, United Commercial's bank subsidiary in Shanghai. Operations will continue uninterrupted as early as this weekend.
The transaction followed extensive coordination between governments. U.S. officials said Chinese regulators had to give preliminary approval for East West to operate UCB-China and planning between regulators in the U.S., China and Hong Kong had been ongoing since UCB's problems – including fraud allegations and heavy commercial real estate losses – came to light.
"The resolution of UCB demonstrates value, and prospects, for international cooperation in resolutions of banks and other financial firms," the Federal Deposit Insurance Corp. said Friday.
The UCB failure capped off yet another busy Friday night for the FDIC. With four other failures of community banks, the year's total hit 120. The government's estimated losses from all five seizures Friday totaled about $1.5 billion.
UCB's 63 branches will begin to reopen on Saturday as part of East West, the FDIC said. Banking operations in China and Hong Kong will resume during normal hours on Monday.
The FDIC said the agency would continue to insure UCB's domestic deposits, while depositors in Hong Kong will continue to receive a full guarantee through the blanket protection provided by the government there.
Overall, East West agreed to assume $7.5 billion of UCB's deposits, and pay the FDIC a 1.1% premium. The acquirer also agreed to take over roughly $10.2 billion in assets, sharing losses with the FDIC on a $7.7 billion chunk. The resolution was estimated to cost the FDIC $1.4 billion.
The FDIC said the failure was caused primarily from losses due to "substantial concentrations" in U.S. commercial real estate and construction. The agency suggested the bank's problems possibly could have been detected sooner, but "earlier identification … may have been impeded through alleged fraud exercised by former senior management, currently under investigation by the relevant authorities."
Following a cease-and-desist order from the FDIC and California regulators in early September, the bank announced the departure of both UCB's chief executive officer and chief operating officer.
"The order raised specific concerns with respect to management's use of policies and practices that were detrimental to the bank and jeopardized the safety of its deposits," the FDIC said.
Earlier in the night, the FDIC closed banks in Minnesota, Georgia, Missouri and Michigan.
The first closure was that of $157 million-asset United Security Bank in Sparta, Ga. The Federal Deposit Insurance Corp. sold the bank's $150 million in deposits and virtually all of its assets to Ameris Bank in Moultrie, Ga., which paid a 0.36% deposit premium.
Ameris and the FDIC agreed to share losses on a $123 million pool of the failed bank's assets. The FDIC estimated the cost of the resolution will be $58 million.
Regulators also closed $199 million-asset Prosperan Bank in Oakdale, Minn.; $28 million-asset Gateway Bank of St. Louis; and $15 million-asset Home Federal Savings Bank in Detroit.
The agency estimated Prosperan's failure will cost about $60 million. Alerus Financial in Grand Forks, N.D., agreed to pay a 1.02% premium for all of Prosperan's $176 million in deposits. It will also acquire about 87% of its assets, but share losses with the FDIC.
Meanwhile, Central Bank of Kansas City agreed to assume all of Gateway's $28 million of deposits, paying no premium, and acquire virtually all of the failed bank's assets. The failure was estimated to cost $9.2 million.
The FDIC said the operations of Home Federal, a thrift, would resume during normal business hours as part of Liberty Bank and Trust Co. in New Orleans. Liberty B&T agreed to assume all of Home Federal's $12.8 million in deposits, and acquire virtually all of its assets. The buyer did not pay a premium. The resolution was estimated to cost $5.4 million.