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Source URL http://www.fdic.gov/news/news/...

Related Companies East West Bancorp Inc. (EWBC) East West Bank UCBH Holdings Inc. United Commercial Bank

Related Documents Press Release (PR) East West Bancorp Inc. 11/6/2009, filed on 11/6/2009 10-Q American Bankers Ins Grp Inc. 3/31/1994

Related Articles 11/3/2009 Rumor Mill: Clouded future for UCBH 10/30/2009 FDIC unveils September enforcement actions 10/14/2009 Report: China Minsheng unable to boost stake in UCBH 9/8/2009 UCBH CEO, COO step down; internal investigation reveals deception

Related Issues in Focus Appetite for destruction

Related Deals East West Bancorp, Inc./United Commercial Bank

The California Department of Financial Institutions on Nov. 6 closed San Francisco-based United Commercial Bank, a unit of UCBH Holdings Inc., and named the FDIC receiver, according to a news release issued the same day.

United Commercial was the first bank that received TARP funds from the U.S. government and was later seized by regulators. According to SNL data, UCBH received $298.7 million in TARP funds a year ago.

Pasadena, Calif.-based East West Bancorp Inc. unit East West Bank will assume all the failed institution's deposits under a purchase and assumption agreement with the FDIC.

In early September, Thomas Wu, UCBH Holdings' president and CEO, and Ebrahim Shabudin, the COO and former chief credit officer, resigned after an internal investigation revealed deception related to impairment losses on nonperforming loans and other real estate assets. Additionally, United Commercial Bank entered into a cease and desist order with the FDIC, requiring it to raise additional capital, among other provisions, while the holding company entered into an agreement with the Federal Reserve.

In the wake of these difficulties, China Minsheng Banking Corp. was reported to be interested in making an additional investment in the bank. China Minsheng already owned a 9.6% stake in the UCBH, and media reports indicated that China Minsheng would boost its investment to at least 50%. When an Oct. 14 report claimed regulators would not allow a deal to go through, UCBH shares fell sharply.

The company was facing a severe capital shortfall, and BMO Capital Markets analyst Lana Chan recently told SNL that the company had to raise up to $600 million to meet the demands of the FDIC's order. Given that the company's stock was trading below $1 per share, Chan said a capital raise didn't have much chance of success. Chan as well as other analysts, had speculated that East West Bancorp was a likely candidate to acquire United Commercial Bank's assets out of receivership.

East West Bank paid the federal regulator a premium of 1.1%. This agreement included all U.S. branches of the shuttered entity, its Hong Kong branch, as well as its Shanghai-based unit, United Commercial Bank. As part of this agreement, the FDIC transferred to East West Bank all qualified financial contracts to which United Commercial Bank was a party and those contracts remain in full force and effect, the FDIC release said.

The seized bank had total assets of $11.2 billion and total deposits of approximately $7.5 billion at Oct. 23.

East West Bank agreed to buy approximately $10.2 billion in assets of the failed bank. The FDIC and East West Bank also inked a loss-share agreement on roughly $7.7 billion of the closed bank's assets, whereby East West Bank will share in the losses on the asset pools covered under this arrangement.

Deutsche Bank Securities Inc. served as financial adviser to East West Bank on the transaction, while Simpson Thacher & Bartlett LLP served as legal adviser.

The FDIC estimated this failure's cost to its deposit insurance fund at $1.4 billion.

According to a separate news release issued late Nov. 6, East West Bank, in acquiring United Commercial Bank's banking operations via the FDIC-assisted transaction, will receive $10.4 billion in assets, including $7.7 billion in loans, and assume $9.2 billion in liabilities, including $6.5 billion in deposits of the closed bank. The loss-sharing arrangement covers "substantially all" acquired loans, the company release said.

East West also announced the completion of a $500 million capital raise through the private placement of 18.2 million shares of common stock, priced at $9.04 per share, equivalent to $165 million, and the issuance of 335,047 shares of mandatory convertible cumulative nonvoting perpetual preferred stock, series C, totaling $335 million. The fresh capital mainly came from existing East West shareholders. East West noted in the release that no individual investor has total ownership of the company that exceeds 9.9%.

The series C preferred stock will convert into shares of the company's common stock at the conversion price of $9.04 per share after the company has received stockholder approval to permit such conversion. The company intends to seek such approval before year-end.

Simpson Thacher & Bartlett LLP also served as legal adviser on the capital raise.

The 63 U.S. branches of United Commercial Bank will reopen Nov. 7 as branches of East West Bank, according to the FDIC statement. All locations in Hong Kong and China will reopen Nov. 9. Also, the Shanghai-based subsidiary will continue its regular banking operations supported by East West Bank, whose qualification has already passed the preliminary review by the China Banking Regulatory Commission.

United Commercial Bank is the 120th FDIC-insured institution to fail in the U.S. in 2009, and the 14th in California.