Failing banks
| Download
KPCC business analyst Mark Lacter talks about the trouble with failing banks.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, we still have banks failing – the most recent is one that catered to Asian-Americans.
Mark Lacter: That’s right Steve – and a few years ago it would have been unthinkable to see an Asian-American bank being seized by the government. These banks had done quite well, largely because they had a very loyal customer base. Then along comes the recession and everything changes.
As you mentioned, federal regulators took over United Commercial Bank, which had been one of the bigger players for the Chinese American market. It’ll be a pretty costly failure – the government had invested almost $300 million into the bank. Now that's gone, and there's also the $1.4 billion in insurance deposits that were federally insured.
The feds immediately sold United Commercial to East West Bancorp, which is based in Pasadena, also focused on Chinese-American customers, and now becomes the largest bank of any kind based in Southern California.
Julian: What kind of problems did United Commercial face?
Lacter: See if this sounds familiar – too many commercial loans that are now turning into losses. Another complication is that the senior executives were fooling around with financial statements so the losses wouldn't look as bad as they are.
But this could turn out to be a good deal for East West Bank, which winds up with more branches around the country, a bigger deposit base, and it'll give them a banking license to operate in China (that’s a big deal because those licenses are not easy to come by and it makes operating in China a lot easier).
Julian: But doesn’t East West have its own problems?
Lacter: It sure does – namely bad loans (the bank just reported a third-quarter loss). They'll also need to wait out the economy in places like the San Gabriel Valley, which has gotten socked by a big drop in imports. But Wall Street obviously likes this development because East West stock took off after the takeover was announced.
Julian: OK, let's stick with the Asian market – what about Korean banks?
Lacter: Up until a couple of years ago, you had a dozen or more banks catering to the Korean-American community and most of them had done quite well. Maybe too well – one thing we've learned from this terrible recession is that competition made bankers do some dangerous things, such as loosen their lending standards for the sake of winning a piece of business.
So now we have Hanmi Financial, which is a long-established player within the Korean-American community, being ordered by regulators to raise $100 million in capital by next July or face being taken over.
Julian: Is Hanmi reaching to investors in South Korea?
Lacter: Yes, though there's some question about how much of that investment the regulators will allow. They really need the capital because they also have gotten killed from losses in commercial real estate. You notice a theme here?
The entire Korean-American community has taken a hit – vacancy rates for commercial property are way up, asking rents are way down – and many smaller businesses are struggling to survive.
Julian: And no magic cure.
Lacter: No magic cure, though it's worth noting that the Korean-American business community is very self-supporting, and there's still quite a bit of investment money that's been sitting on the sidelines, both here and South Korea.
So with prices having fallen so far in the Wilshire Corridor area, which is in the heart of Koreatown, it wouldn't be surprising to see a mini-boom in the purchase of shopping centers and office buildings. Even now, real estate is considered a big part of the American Dream.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes a business blog at LAObserved.com.
blog comments powered by Disqus
