Wilshire Deal's Cost-Cut Goal May Spur Korean-American Bank M&A

Wilshire Bancorp's deal in Los Angeles last week could kick the consolidation of Korean-American banks into high gear.

There have been four deals in the niche sector since October — a substantial number considering there are less than two dozen Korean-American banks.

BBCN Bancorp (BBCN) and Wilshire (WIBC) — two of the largest Korean-American banks — have been the buyers. Wilshire made it two deals apiece when it agreed to buy L.A. rival Saehan Bancorp for $105.5 million, or 180% of Saehan's current tangible book value.

Moreover, Wilshire's eye-catching promise of 60% cost savings could inspire even more deals in Korean-American communities across the country.

"If Wilshire can prove they can actually get 60% cost savings without damaging the business reputation, we could see a real acceleration in deal activity," says Tim Coffey, an analyst at FIG Partners. "This is a real in-market deal with some real meat in the cost savings."

Cost savings are often the trickiest part of deals between two banks in the same market, and analysts say that is especially true of deals among Asian-American banks.

The 2011 merger between Center Financial and Nara Bancorp, which created BBCN, cut their combined costs 30% and executives were "very careful in discussing the cost saves," says Juliana Balicka, an analyst at Keefe Bruyette & Woods. That deal is regarded as the catalyst of the four more recent deals.

"I'm a little surprised to see how blunt Wilshire was in its cost saves," Balicka says. "They were up front and weren't dancing around this still sensitive issue."

Eight of Saehan's 10 branches are within a mile of a Wilshire location, Wilshire said. However,

that doesn't mean all of those redundancies will be eliminated, cautioned Alex Ko, the chief financial officer of Wilshire.

"It is true that distance-wise, there is overlap, but that doesn't mean we are closing eight out of 10. It might be the Wilshire branch that closes," Ko says. "But even if they are across the street — if the customer need is there, we will keep them both."

Saehan, which narrowly escaped failure with an eleventh-hour recapitalization deal in early 2010, has shrunk its assets 36% since the end of 2008 to $542 million.

In seeking cost cuts, Wilshire will try to avoid jeopardizing the work that Saehan had done over the last few years to survive, Ko says.

"Saehan at one time was nearly $1 billion in assets; now they are half of that," Ko says. "Their core key employees are there, and so are the customers. We are sensitive on that regard. It is not unique to Korean-American banks."

Besides the cost savings, Ko says he is excited about the deal's potential to add revenue. For example, Wilshire could offer Saehan customers more expertise in Small Business Administration loans.

The pairing, even if the pace of revenue held steady, is expected to be 10.3% accretive to earnings in 2015 and Wilshire is expecting 4.1% tangible book value dilution that would be earned back over 3.1 years.

Following Saehan's recapitalization and subsequent recovery, it has been poised to be acquired, analysts say. Last year Hana Financial Group, in Seoul, South Korea, attempted to take a majority stake, but the deal quickly collapsed.

"Wilshire is the winner; everyone wanted this franchise," Ko says. "The revenue growth is substantial. They have gone through a difficult credit cycle and are much better, and it is a great franchise to add on to Wilshire for further growth."

The deal follows Wilshire announcing in June that it would acquire BankAsiana in Palisades Park, N.J. for $32.5 million, a move that bolsters its East Coast presence.

The market has welcomed Wilshire's dealmaking. With the stock trading at $8.47 on Monday, it has risen 25% since June 7 — the day before it announced its deal for BankAsiana.

It has been the subject of additional M&A speculation.

Wilshire was considered the frontrunner to buy Hanmi Financial (HAFC), another onetime struggler that has rebounded. At $2.4 billion in assets, Hanmi would have put Wilshire on par with the $5.8 billion-asset BBCN.

Although Hanmi announced it was exploring strategic alternatives in January, analysts say the company, also based in Los Angeles, is now planning to stay independent. Hanmi may try to become a buyer, giving Wilshire and BBCN another challenger.

"Hanmi can't be left behind — it can't stay the same size," Coffey says.