Commercial loan fears hit shares of Asian American banks

Rising write-offs of commercial real estate loans at the Southland’s Asian American banks will mean bottom-line losses for the lenders through 2009 and possibly into 2010, analysts at bank-stock specialist Keefe, Bruyette & Woods are warning.

It’s another sign of how the residential real estate bust has spread to infect other corners of the region’s economy.

On Monday, East West Bancorp fell $1.09, or 6.8%, to $14.95 and Cathay General Bancorp slid $1.58, or 6.8%, to $21.74 after Keefe analysts Julianna Balicka and Fred Cannon cut their ratings on the stocks to "underperform" -- the equivalent of "sell" -- from "market perform," or hold.

Nara Bancorp dropped $1.13, or 11.7%, to $8.55 after Balicka and Cannon downgraded the stock to market perform from "outperform," or buy.

The analysts had expected the banks to be profitable in 2009. No more: They slashed their 2009 earnings estimate for East West to a loss of $1.50 a share from a profit of 75 cents. Cathay’s estimate was cut to a loss of 75 cents from a profit of $1.85, and Nara’s to a loss of 15 cents a share from a profit of 80 cents.

They’re more pessimistic than most of their peers. Wall Street analysts’ mean 2009 earnings estimate for East West is a profit of 46 cents a share, according to Bloomberg News data. The mean estimate for Cathay is a profit of $1.51 a share, and for Nara a profit of 61 cents a share.

Mounting unemployment and falling consumer spending will mean "rising vacancies in commercial real estate across California through 2010 for office space, retail properties and apartments," Balicka and Cannon, who are based in San Francisco, warned in a report.

"Though we believe the magnitude of [loan] losses in commercial real estate will be smaller and the speed more gradual than with construction loans, we believe all California banks will suffer significant portfolio deterioration in 2009 and 2010," they said.

As with the residential mortgage market, one risk is that aggressive competition for commercial loans in recent years led banks to relax their lending standards, the Keefe analysts said.

East West, Cathay and Nara all have received capital injections under the U.S. Treasury’s program to bolster bank balance sheets. So have rivals including Wilshire Bancorp and Center Financial Corp. That, at least, suggests the Treasury believes the banks will make it through this recession, because the capital-injection program is supposed to be largely aimed at relatively healthy institutions.

The Keefe analysts still have a buy rating on shares of Center Financial, parent of Center Bank. Although Balicka and Cannon expect Center to lose 30 cents a share in 2009, the firm’s stock took a bigger hit in 2008 than shares of its peers, leaving it relatively undervalued, the analysts said.

Center Financial shares, which plunged 50% last year, edged up 5 cents to $6.39 on Monday.

-- Tom Petruno

Photo: Vacant retail stores at Moreno Beach Plaza in Moreno Valley in November. Credit: Mark Boster / Los Angeles Times

Comments

[syp]

what about hanmi bank? it filed for tarp funds but did it receive any?

[Tom Petruno]

@syp: Hanmi Financial applied in November for $105 million of TARP funds from the Treasury. The company says it has not yet heard back from the Treasury on the application.

Tom Petruno