Big California bank fails, has China branches

Reuters (Link) - Charles Abbott and  Alan Wheatley (November 7, 2009)

United Commercial Bank, a big San Francisco bank with branches in China, was closed by state regulators on Friday and its banking operations were acquired by East West Bancorp Inc, also active in both nations.

East West said the transaction made it the second-largest independent bank in California. Based in Pasadena, East West has 137 U.S. branches, including offices in New York, Atlanta, Boston and Seattle, and four in China.

United Commercial Bank, with assets of $11.2 billion, was the 120th U.S. bank to fail this year. Regulators closed four other banks on Friday, in Georgia, Michigan, Missouri and Minnesota. Failures already were the highest since 1992.

Banks are struggling to clean up their balance sheets as loans made during the credit boom continue to deteriorate. The FDIC has said the pace of failures will remain elevated through next year.

Last year 25 institutions were closed by regulators, compared to three in all of 2007.

Dominic Ng, chief executive of East West Bank, said the transaction was "a transformational event" that strengthened his bank's position. East West's assets increased to $19 billion, from $12.5 billion.

United Commercial Bank had 63 U.S. branches, a branch in Hong Kong and a subsidiary, UCB-China, in Shanghai. They will reopen as part of East West Bank.

China's Banking Regulatory Commission said UCB-China had ample liquidity and capital. It said the bank had total assets of 2.667 billion yuan. With liabilities of 1.754 billion yuan, its net assets were 913 million yuan, the regulator said in a statement posted on its website,

The CBRC said it would work closely with the Federal Deposit Insurance Corp (FDIC) to maintain the stability of UCB-China.

It said it had conducted a preliminary examination of East West Bank's fitness to take over UCB-China and was now deliberating on the matter in accordance with Chinese laws.

Minsheng Banking Corp owns 9.9 percent of UCBH Holdings Inc, the parent of United Commercial Bank, which was the biggest lender in the United States serving the Chinese community.

Minsheng, China's first listed non-state lender, raised its stake from 4.9 percent in December 2008.

East West agreed to assume $10.2 billion of United Commercial Bank's assets and entered a loss-share transaction with the FDIC on approximately $7.7 billion of the assets. FDIC estimated the bank closure will cost its deposit insurance fund $1.4 billion.

The California Department of Financial Institutions cited inadequate capital and other weaknesses in closing United Commercial Bank. The agency said the bank had been unable to increase its capital reserves sufficiently.


Also closed on Friday were:

-- United Security Bank, of Sparta, Georgia, with assets of $157 million. Ameris Bank, of Moultrie, Georgia, agreed to assume all the deposits. FDIC and Ameris Bank entered a share-loss transaction on approximately $123 million of United Security Bank's assets.

-- Home Federal Savings Bank, of Detroit, with $14.9 million in assets and $12.8 million in deposits. Liberty Bank and Trust Co, of New Orleans, agreed to assume all the deposits and essentially all of the assets.

-- Gateway Bank of St Louis, of St Louis, Missouri, with $27.7 million in assets. The bank's sole office will reopen on Saturday as a branch of Central Bank of Kansas City, Missouri, which assumed Gateway's assets.

-- Prosperan Bank, of Oakdale, Minnesota, which had assets of $199.5 million and deposits of $175.6 million. FDIC entered an agreement with Alerus Financial, National Association, of Grand Forks, North Dakota, to assume all of Prosperan's deposits. It purchased approximately $173.9 million of Prosperan's assets in a share-loss agreement with FDIC.

The FDIC insurance fund's balance went negative as of the end of the third quarter, but the FDIC is careful to emphasize that it has plenty of access to cash to operate and protect bank deposits. The agency has estimated the total cost of failures will reach $100 billion from 2009 through 2013.

The FDIC board will meet next week to finalize its proposal to have banks prepay three years of industry assessments, which would give the government cash to handle the rising tide of bank failures.

During the current financial crisis, Seattle-based lender Washington Mutual became the biggest bank to fail in U.S. history. It had $307 billion in assets when it was closed in September 2008 while suffering from losses from soured mortgages and liquidity problems.