FDIC Exam Finds “Deficiencies” In Cathay Bancorp’s Safeguards

0

FDIC Exam Finds ‘Deficiencies’ In Cathay Bancorp’s Safeguards

WALL STREET WEST

When it comes to Cathay General Bancorp, investors apparently figure that what they don’t know won’t hurt them.

In a cryptic filing with the Securities and Exchange Commission on June 18, Cathay General said its board had signed a memorandum of understanding with the Federal Deposit Insurance Corp. after a routine examination found “certain deficiencies” in the bank’s compliance with the Bank Secrecy Act.

Wall Street analysts acknowledged that Cathay needs to upgrade its safeguards against money laundering. The bank specifically has trouble keeping track of cash transactions of $10,000 or more, particularly those that are transferred among several accounts by individual customers. However, there’s very little detail available on the extent of the problem. The bank has 90 days to comply with the act.

“The issues involved in the agreement appear fairly mild, in our opinion,” stated analysts Brian Conn and Joe Morford at RBC Capital Markets in San Francisco, in a report issued last week.

Cathay plans to hire an independent consultant, enhance internal controls, dedicate a portion of its staff to compliance issues and to regularly adopt employee training on compliance, the company said in its SEC filing.

Perry Oei, Cathay’s general counsel, would not discuss specifics of the bank’s anti-laundering procedures other than to say: “We made our disclosure in the 8-K.”

Analysts estimate it will take $100,000 to improve compliance, which is not expected to have an impact on earnings. In addition, Cathay disclosed that the memorandum with the FDIC could limit or delay its ability to obtain regulatory approval for any expansion plans. Currently, the company is focused on digesting its acquisition of GBC Bancorp in October 2003.

Kate Berry

Storm on the Horizon?

The chief executive of PacifiCare Health Systems Inc. has warned that runaway healthcare costs and a shrinking hospital market could spell trouble for the industry and the Cypress-based company.

“We’re emerging from a new calm and moving into the next storm,” Howard Phanstiel told analysts at a recent meeting in Laguna Beach. “My job is to set the course and batten down the hatches so PacifiCare can weather the storm and sail to a new day.”

Health insurance premiums are far outstripping inflation and the growth in salaries for workers. Inflation is around 3 percent, and wages are up about 5 percent, but health premium growth is in the mid-teens.

Meanwhile, the shrinking hospital market could make it harder for PacifiCare to strike discounts in contract talks with hospital operators, Phanstiel said.

He noted that PacifiCare’s key markets California, Arizona, Colorado and Texas have fewer hospital beds per 100,000 people than the national average.

On the plus side, Phanstiel cited higher federal reimbursements, renewed hospital interest in treating Medicare patients and the eventual launch of full prescription drug coverage. PacifiCare and other plan operators are set to get $14 billion in federal funding thanks to new Medicare legislation.

In the days after PacifiCare’s investor conference, J.P. Morgan analyst Scott Fidel upgraded his rating on the company’s shares to “neutral” from “underweight,” primarily because of Medicare growth prospects.

The brokerage said that “as election-year noise subsides and seniors gain familiarity with the private-sector options,” PacifiCare could reach its target of 787,000 members in its Secure Horizons Medicare plan by the end of 2005. As of May, PacifiCare had 688,137 Secure Horizons members.

As for rising healthcare costs, Phanstiel expects growing political pressure bearing down on drug makers.

“Congress has whacked every other major industry in health care long-term care, hospitals, health insurers, docs, laboratories,” Phanstiel said. “The only group that hasn’t been whacked is Big Pharma.”

Orange County Business Journal

No posts to display