Surprise profit for Pasadena's East West Bank
When East West Bancorp acquired failed rival United Commercial Bank last November, analysts applauded. But they still expected the Pasadena bank to report year-end losses as it worked its way through the commercial loan problems gnawing at regional financial firms.
East West, now the largest banker by far in the Chinese-American niche, surprised observers late Tuesday by instead reporting profits for the fourth quarter and for all of 2009. In essence, it said the loan problems at San Francisco-based United Commercial were far less severe than anticipated when it struck the takeover deal with the Federal Deposit Insurance Corp.
What’s more, East West Chairman Dominic Ng told analysts today, the bank has turned the corner on dealing with its own lending problems and expects its provisions for loan losses and charge-offs of uncollectible loans to decline through the rest of this year.
In a complicated earnings report, East West recorded a gain of $471 million on the United Commercial acquisition. It said it initially overestimated how much it needed to mark down the value of the rival bank’s loans, in some cases because United Commercial already had done so adequately. What’s more, East West said, it had $74 million in unanticipated income from United Commercial borrowers who unexpectedly paid off their loans.
East West reported a fourth-quarter profit of $259.7 million, or $1.96 a share, compared with a year-earlier loss of $3 million (5 cents a share) and a third-quarter loss of $79.2 million (91 cents a share). Net income for the year was $76.6 million, or 33 cents a share, compared with a 2008 loss of $49.7 million, or 94 cents a share.
Wall Street had expected 26 cents a share in losses for the quarter, and East West stock closed the day up 82 cents, almost 5%, at $18, a 52-week high. The shares have more than doubled in value from $8.65 before the United Commercial deal was announced the night of Nov. 6.
East West has been aggressively addressing its credit problems, RBC Capital Markets analyst Joe Morford said in a note to investors. Nonperforming assets, a measure of problem loans, fell by 11% from the third quarter, while charged-off loans fell 14% to $130.7 million. The $140 million that the bank added to its reserves to deal with future loan problems more than offset those losses, Morford noted.
East West’s total assets rose 66% over the course of the year to $20.6 billion at year-end, mostly because of the United Commercial deal. Deposits increased to $15.0 billion, or 84% year over year, as East West grew its own deposits by 9% in addition to adding those of United Commercial.
Having raised $608 million in new capital during 2009, much of it to support the United Commercial takeover, East West ended the year with about twice the level traditionally considered by regulators as well capitalized. The bank also received a $306.5-million investment from the U.S. Treasury in late 2008 as part of the government’s efforts to bolster the financial industry. Ng said the bank would repay that money in full later this year. He wouldn’t specify when.
East West also announced that Thomas J. Tolda, its executive vice president and chief financial officer since April 2008, had resigned for personal reasons. He was succeeded in those positions by Irene H. Oh.
-- E. Scott Reckard
Photo: East West Bancorp Chairman Dominic Ng. Credit: Mark Boster / Los Angeles Times