The local banking industry is undergoing yet another wave of consolidations, with four of L.A.’s 25 largest banks disappearing over the past year and more likely to follow.
The result: Only 87 banks are now based in Los Angeles County, about half the 167 based here a decade ago, according to Bauer Financial Reports Inc.
The buying spree is largely being undertaken by out-of-state institutions, which are snapping up California banks at a rapid pace. As a result, the 304 banks based in California today represent a 20-year low, according to the Federal Deposit Insurance Corp.
Out-of-state banking giants like Bank of America Corp. and Citigroup are not the only predators with which small and mid-sized L.A. banks are struggling to compete.
“Ten years ago, you didn’t have Charles Schwab out there trying to grab customers,” said Campbell Chaney, a banking analyst with Sutro & Co. “On the consumer-debt side, you have credit card companies trying to solicit consumer business Schwab, American Express, E-Trade lots of other institutions are competing.”
D. Linn Wiley, president of No. 4-ranked Citizens Business Bank, predicts that the current group of California banks will be cut in half by 2010, and that 80 to 90 percent of the country’s total assets will be controlled by 15 to 25 banking goliaths. “It’s a question of survival because of the resources required to invest in technology and customer service,” he said.
Unlike the mega-mergers that swallowed Security Pacific Bank in 1992 and First Interstate Bancorp in 1996, the current wave of mergers is swallowing mid-sized L.A. banks, such as Imperial Bank, Tokai Bank and First Security Bank.
The remaining L.A. institutions are larger mid-sized banks, most of which have reached their current bulk by consuming smaller competitors, and very small banks those not large enough to yet qualify as takeover targets. But even those tiny institutions are now being approached, as ever-more-aggressive large and mid-sized banks realize that buying a single-branch bank is often more cost effective than opening a new branch of their own.
Tiny targets
Anthony Kourounis, president of California Oaks State Bank, a one-branch Thousand Oaks bank with just $56.4 million in assets, said he regularly receives buyout proposals, even though his bank is only three and a half years old.
“Everybody wants to take us to the prom, but we don’t even know how to dance yet,” he said.
Such fledgling institutions now account for a larger portion of the remaining L.A. banks. As mid-sized banks get swallowed, many of their top executives are cut loose. Some of those laid-off executives found new L.A. banks, grow them to critical mass and sell them off then undertake the cycle yet again. Others merely get absorbed by one bank after another.
Kourounis, for example, worked for Bank of the Oaks when it was acquired by First Interstate Bank in 1994, and for First Interstate when it acquired Bank of A. Levy and then when it was acquired by Wells Fargo in 1996.
The largest recent bank merger locally was last month’s marriage between L.A.’s two Japanese banks, Sanwa Bank California and Tokai Bank of California. The newly renamed merged entity, United California Bank, sits atop the list as the largest L.A.-based bank, with about $11 billion in assets.
That deal was unusual in that the surviving institution remains based in Los Angeles. That has not been the case with other L.A. bank mergers over the past 12 months. Imperial Bank of Inglewood, whose $8.5 billion in assets made it the third largest bank in the county last year, is now a subsidiary of Detroit-based Comerica Inc., following its January 2001 buyout. One month earlier, Republic Bank of California, which had $676 million in assets, was bought by HSBC Bank USA Inc. of Buffalo, N.Y.
Confusion swirls
The pace at which the mergers and subsequent operational integrations are taking place was evident last week when a call to the former Beverly Hills headquarters of Republic Bank was answered: “Good morning, Republic, (pause) HSBC.”
Institutions that have managed to remain independent and grow internally are moving up the list, primarily as a result of larger competitors getting bought out.
Such is the case with San Marino-based EastWest Bancorp, now the No. 3 bank in the county. “When I first became CEO in 1992, we had assets of about $600 million, but we probably ranked 50th to 60th,” said Dominic Ng, chairman. “It doesn’t take much to increase in size because everyone else bailed out on us.”
As other institutions have bailed out, the remaining banks picked up additional customers. “Small businesses are not that mobile, so they tend to stay and find the banks remaining here,” said Benjamin Hong, chief executive of the No. 18-ranked Nara Bancorp Inc., a Korean-American bank in Los Angeles. “We get the benefits.”
Indeed, the community of Asian banks in Los Angeles has grown along with their respective ethnic populations. Hong noted that Nara’s 15-20 percent annual growth rate mirrors that of the Korean community in Los Angeles.
And while EastWest Bancorp continues to grow in stature, Ng said the organization is still small enough to properly serve his customers. “The people that come to us are entrepreneurial immigrants wanting a $1 million-to-$10 million line of credit,” said Ng.
But remaining independent will become an increasingly tough challenge for mid-sized banks like EastWest.
“The billion-dollar banks are all buying each other up, and now you’re going to have the half-billion-dollar banks doing it,” said Kourounis.
