East West shares soar after deal to buy failed rival
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Wall Street thinks Pasadena-based East West Bancorp made a sweet deal to buy rival United Commercial Bank in a takeover brokered Friday by the Federal Deposit Insurance Corp.
Shares of East West -- which now becomes by far the largest U.S. bank focused on the Chinese American market -- have rocketed more than 50% today. The stock was up $4.81 to $13.46 at about 12:20 p.m. PST.
The FDIC seized loss-ridden United Commercial on Friday and agreed to sell the San Francisco-based lender to East West. The deal will boost East West’s assets to about $19 billion, from $12.5 billion. The FDIC agreed to cover most of the expected additional losses on United Commercial’s loan portfolio.
As my colleague E. Scott Reckard detailed over the weekend:
The takeover will greatly expand the reach of East West, which has concentrated on Southern California and the San Francisco Bay Area. In addition to 69 California offices, East West has full-service branches in Houston and Hong Kong. United Commercial not only has dozens of branches in California but also has locations in key Chinese American areas, including New York, Boston, Seattle, Atlanta and Houston. What’s more, because of its 2007 acquisition of a Shanghai bank, United Commercial also has a banking license in China -- a ‘rare and hard-to-come-by’ asset that makes it easier to operate and expand in that country, said RBC Capital Markets analyst Joe Morford. It has full-service offices in Shanghai, Hong Kong and Shantou, China.
Even though East West, too, is in the red this year as loan losses mount, Wall Street clearly now sees the bank as a survivor. Still, the stock remains far below its record high of $43.30 in 2004.
Several brokerage analysts rushed to boost their ratings on East West today. Michael Diana of Noble Financial Group in New York raised his rating to ‘buy’ from ‘hold,’ citing the potential for ‘massive’ cost savings in the merger from what he figures will be consolidation of overlapping East West and United Commercial branches in California.
East West CEO Dominic Ng, however, told The Times that he expected to see only a ‘few’ branch closings as a result of the deal.
Morgan Stanley analyst Ken Zerbe boosted his East West rating to ‘overweight’ from ‘equal weight,’ and Sandler O’Neill analyst Aaron Deer removed his ‘sell’ rating, raising the stock to ‘hold.’
-- Tom Petruno