UCBH Holdings Inc. of San Francisco had been expanding in New York by opening a few branches at a time, but it abruptly changed course last week with a $103.6 million deal to buy Great Eastern Bank.
UCBH emerged as a white knight Thursday night, saving Great Eastern from another West Coast Asian-American banking company. The $6 billion-asset Cathay General Bancorp in Los Angeles announced Sept. 6 that it had entered into option agreements to buy a 41% stake in Great Eastern for about $28.4 million - with the intentions of negotiating with the rest of the shareholders to buy the remaining stock.
But the $310 million-asset Great Eastern invited other companies, including the $7 billion-asset UCBH, to make an offer.
On Thursday, Great Eastern said it had filed a protest with the Federal Reserve Board objecting to Cathay's attempt to acquire control. Executives said Cathay has never made an offer to Great Eastern's board and opted instead to negotiate with shareholders in a piecemeal fashion.
"We feel that Cathay's activities in accumulating options to support its effort to acquire GEB are not in the best interests of our shareholders, and could lead to uncertainties and controversies, which would make it difficult to insure that the outcome of the process results in the strongest possible combination for the benefit of our shareholders, employees, and the community we serve," Great Eastern president and chief executive William Laraia said in a press release.
Calls to Cathay executives were not returned.
Campbell Chaney, an analyst at Sanders Morris Harris Group in San Francisco, said that the scramble to acquire Great Eastern underscores the lengths to which West Coast Asian-American banking companies are now willing to go to expand into other cities with similar ethnic communities.
"Competition for deposits is higher in California than any other area of the country, and more recently, so is competition for loans - particularly commercial real estate - and pricing has gone irrational," Mr. Chaney said. The fight is particularly fierce among Asian-American banks as they all fight for deposits and commercial real estate deals within their ethnic communities.
"It makes sense to alleviate some of those competitive pressures by reaching out of California and into other places where they can grow more easily," he said.
UCBH had tried to persuade the boards of New York Asian-American banking companies to sell for years. It finally entered the market in 2002 by buying a branch from Broadway National Bank, and then opening three other branches.
"This acquisition saves us a lot of time and money in building an infrastructure in New York," Thomas S. Wu, UCBH's chairman, president, and chief executive, said in an interview Friday. "We'll have a stronger platform that will allow us to grow exponentially."
The deal is expected to close next quarter. UCBH's United Commercial Bank would have nine branches in New York, including Great Eastern's five branches in midtown Manhattan, Flushing, and the Chinatown areas of Brooklyn and Manhattan.
UCBH's offer is about 2.7 times book value and should be modestly accretive to earnings next year.
Brett Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said the deal should really boost the bottom line in 2007 and beyond, particularly since UCBH also announced Thursday that it had hired Pauline Tse, the former manager of the Manhattan Chinatown branch of HSBC Bank USA, to lead UCBH's New York operations.
"This is a great pickup of expertise and talent and represents a huge opportunity to bring in a big number of customers and expand their New York franchise," Mr. Rabatin said.
UCBH has also been expanding into other cities with concentrations of Asian-Americans. In May it announced an agreement to buy the $164.3 million-asset Pacifica Bancorp Inc. in Bellevue, Wash. In August, UCBH said that it planned to buy Asian American Bank and Trust Co. in Boston.
Cathay has been in New York since 1999. It now has four branches there, as well as a branch in Boston.
Under the terms of UCBH's deal with Great Eastern, shareholders would receive $51.8 million in cash and about 2.9 million yet-to-be-issued UCBH shares, valued at about $51.8 million.
