Korean banks in Los Angeles, which for decades have peacefully co-existed by focusing on their own respective niches within the 800,000-person Korean-American community, suddenly are initiating aggressive acquisition drives.

The widening consolidation efforts are coming in the wake of Hanmi Financial Corp.'s May 9 announcement that it is buying California Center Bank for about $103 million. Once the merger of the two local Korean banks is consummated, Hanmi will have about $1.5 billion in assets, making it by far the largest Korean bank in town. It will be almost twice as large as its next biggest competitor, Pacific Union Bank, which has $806 million in assets.

"Mainstream banks are coming into our market," said Chung Hoon Youk, president and CEO of Hanmi. "To efficiently compete, we need to be bigger."

And that opinion seems to be shared by others in the Korean banking community. "We are competing against each other in a fairly limited market, so the acquisition mind is always there," said Benjamin Hong, president and CEO of L.A.-based Nara Bancorp Inc., which has $620 million in assets. Hong said that his bank has been looking for opportunities and will continue to do so, though he declined to name any institution in particular. Opportunities haven't escaped the attention of Pacific Union Bank, either.

"We do review opportunities from time to time," said Diane Kim, chief financial officer at Pacific Union Bank, also a local Korean bank. "There are ways to grow naturally, buying other banks is much quicker, but there are costs."

Among the banks most likely to be takeover targets are Wilshire State Bank, which has $442 million in assets, and Saehan Bank, with $200 million in assets. Officials from those institutions did not return phone calls last week.

Kim added that she believes the looming consolidation would be positive for the Korean banking community as a whole. "When you're able to expand your lending limits, you get more recognition from the investment community," she said.

To many industry observers, consolidation is a natural next step in the progression of Korean banks a much-needed step to adequately serve the growing population of Korean businesses in town and, for the publicly traded banks, to carry out the mission of increasing shareholder value.

"What you have is seven (Korean L.A.) banks following the same pool of customers," said Steve Didion, an analyst with Hoefer & Arnett, a securities research firm. "In order to continue their growth, they have to acquire the competition or look for external expansion."

Merger roots

While Hanmi's pending acquisition of California Center Bank may on the surface appear as an uncharacteristically hostile move (or at least aggressive), an industry source close to the deal said it was much more defensive in nature.

"Nara made several overtures to CCB for the purpose of acquiring it," said the source, who asked not to be identified. "CCB contacted Hanmi, and Hanmi put in a bid that was driven by Nara's bid. In a lot of ways, that was a defensive move from Hanmi's standpoint. Both had courted CCB for quite a while, but Nara's overture forced CCB's hand."

Hong declined to comment on whether or not Nara had made an offer to buy CCB, however, he also characterized Hanmi's acquisition as a defensive move.

Hanmi CEO Youk said his bank's long-term strategy has always been to acquire smaller community banks, and the CCB acquisition was part of that plan. "Our bank was invited by CCB to make a bid, and that's all I know," he said.

Though Nara is a much smaller institution, with about half as much in assets as Hanmi, it has a much greater presence outside the L.A. area and has been fairly aggressive in buying up other banks in recent years. Last year it acquired Korea First Bank of New York, a subsidiary of Seoul-based Korea First Bank, in a deal that included two branches in New York and a loan production office in New Jersey. That move came just two years after Nara purchased a branch of Korean Exchange in Flushing, N.Y. Nara also has two branches in the Bay Area, as well as loan production offices in Chicago and Seattle.

So while Pacific Union Bank is the second-largest Korean Bank in Los Angeles, behind only Hanmi, Nara in many respects is Hanmi's most significant competitor.

"Nara has an advantage over PUB even though (PUB) is bigger," said Didion. "Benjamin Hong is local, whereas PUB is 63 percent foreign-owned."

Newcomers at the gate

Besides the newly competitive, acquisitive nature of Korean banks in L.A., another force promising to reshape the market is the looming arrival of additional Korean banks to Los Angeles.

"I think by the end of the year, there will be a net increase (in Korean banks)," confirmed Hanmi's Youk.

But for right now, acquisitions are the primary reshaping force, and they will be driven by personal ties, as is virtually every deal in the Korean-American community.

"More so than size, future acquisitions will be based on relationships within the Korean banking community," Didion said.

So, as Korean banks grow larger, will they lose their appeal to their core small-business customers?

Hanmi won't, Youk asserted. Its core customer base of Korean small businesses will continue to be Hanmi's backbone, but its client businesses have been growing, so Hanmi will now begin providing more services and larger loans to better serve its customers' needs.

"The growth of our customers has outpaced our growth," said Youk. "We don't want to lose good customers because we're too small."

Nara's Hong said his bank has reached the same conclusion. "We can always accommodate the smaller customers," he said. "(But) as a bank grows larger, their target customer will become larger."

Though even the largest of the Korean banks is miniscule compared to California's largest banking institutions, the growth of ethnic businesses in Los Angeles could eventually make Korean banks attractive takeover targets for mainstream banks, some industry observers said.

But Hong doesn't think so.

"The strongest deterrent to larger mergers is the cultural difference," he said. "(Mainstream U.S. banks) are not confident that they can acquire us and maintain the independent management."

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