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Royal Business Bank in Los Angeles has agreed to acquire Los Angeles National Bank in Buena Park, Calif.
January 10 -
The largest Korean-American and Chinese-American banks, clustered in Southern California, are successfully raising capital, surprising competitors with last-minute infusions even while some operate under regulatory orders.
July 1 -
East West Bancorp grew its commercial loans and reduced deposit costs, sending the largest Chinese-American bank to its seventh consecutive quarter of higher profits.
October 18
The playing field has gotten more crowded for Royal Business Bank, but the Los Angeles bank wants to thin the herd by buying competitors.
The $626 million-asset bank, which focuses on Chinese-Americans, opened in November 2008, just weeks after the Treasury Department introduced the Troubled Asset Relief Program. The initial years were a breeze for Royal, which was armed with $71 million of capital. But as the banking sector improves and
"We happened to be formed at the perfect time. There were only a couple of banks that could lend," says David R. Morris, Royal's chief financial officer. "Over the last few years, it has become very, very competitive. …Pricing is irrational and it makes it more important to grow to a certain size. Acquisitions have to be part of the landscape."
Royal announced earlier this month that it would buy the $192 million-asset
It raised another $54 million last year to help fund acquisitions in existing markets and potential expansion into San Diego and San Francisco. Royal is also considering the Northeast, Chicago, Houston and Seattle.
The Chinese-American banking market seems prime for consolidation. The forces are not all that different than those that traditional banks face: more competition; low interest rates and higher costs. About 60 banks target Asian-Americans; about 40 of them focus on Chinese-Americans, says Brett Rabatin, an analyst at Sterne, Agee & Leach who follows several large publicly traded Chinese-American banks but is unfamiliar with Royal.
"There's no shortage of money available for doing things in that market," Rabatin says. "Plenty of the banks are not earning good returns and the ownership of those should probably sell."
Investors in those banks are
"It is not the expectation of ownership to necessarily have high returns — and that has stifled activity," Rabatin says. "But M&A
Los Angeles National has served the Chinese-American community for nearly 40 years. It is profitable and well capitalized, but is dealing with a high level of nonperforming assets. It has been under a formal agreement with the Office of the Comptroller of the Currency since 2010. Executives had hoped that the OCC would terminate the order this year.
Los Angeles National was considering acquisitions once it emerged from the order when Royal made an offer, says Johnson Tsai, the seller's chief executive.
"Banks smaller than [$500 million] in assets are going to have a hard time making it. My expansion plans were stunted by the" formal agreement, Tsai says. "We were not looking to sell, but they [had] an attractive offer."
Los Angeles National is Royal's first acquisition of a bank focused on the Chinese-American community. It gives Royal three around Los Angeles and one in Orange County. Royal plans to keep all the branches open.
"It is a good bank with long-term relationships," Morris says. "It has true franchise value. We can really combine and have fantastic synergies."
Royal's first two deals — Ventura County Business Bank in Oxnard, Calif., and First Asian Bank in Las Vegas — helped it enter new markets. As Royal looks across the country, it is considering banks that serve Chinese-Americans or are geographically close.
Small banks have had mixed results with far-flung markets, but it is more common for ethnic-focused banks to pursue such a strategy.
"It is good to have operations in those markets," Rabatin says. "You are going to need to follow your clientele."
