Parent of Korean-American Bank Eyes Sale While Bidders Take Aim

By KATE BERRY
Staff Reporter

In the close-knit Korean-American banking community, every chief executive is eyeing the same prize these days: Pacific Union Bank, the third-largest bank in Los Angeles serving the ethnic niche.

Ever since a Texas private equity fund said last month that it would buy a controlling interest in Pacific Union's parent, Korea Exchange Bank of Seoul, potential buyers have been sizing up publicly traded Pacific Union, California's oldest Korean-American community bank.

Korea Exchange Bank still owns 62 percent of Pacific Union's shares, but recent moves by the debt-saddled Korean parent have led analysts to conclude that a sale is imminent by year-end.

In August, Dallas-based Lone Star Funds agreed to pay $1.2 billion for a 51 percent stake in Korea Exchange Bank. The bank, with $44 billion in assets, needs capital so it can clean up a host of rickety loans, including exposure to ailing Korean automaker Hyundai Group and substantial credit card losses.

Last week, Korea Exchange Bank's shareholders approved the appointment of five directors recommended by Lone Star. Analysts believe Lone Star will force a sale of Pacific Union to avoid being reclassified as a bank holding company, which would subject the $8.3 billion investment group to stringent bank regulations.

Another sign of change: The rash of defections by Pacific Union's top managers, including its chief credit officer, who went to rival Hanmi Financial Corp. (one of Pacific Union's possible buyers). Woon Seok Hyun, Pacific's figurehead chief executive, resigned in April. While searching for a replacement, the board named David Warner, an independent director with extensive banking experience in Korea, as interim CEO. Warner did not return calls seeking comment.

Rare opportunity

The big question is who can afford Pacific Union, which has $1 billion in assets and 12 branches in Southern California and Seattle?

"It's going to be expensive, whoever does the deal," said Manuel Rodriguez, an analyst at Keefe Bruyette & Woods Inc. in San Francisco. "This would be one of those once-in-a-lifetime deals."

A sale would mark the first major consolidation among L.A.'s five publicly traded and two privately held Korean-American banks. Together, they operate 60-plus branches within a five-mile radius of Koreatown.

"Pacific Bank is sizable, it has good market share and would be hard to replicate with internal growth," said Mike McMahon, a managing director at Sandler O'Neill & Partners in San Francisco, which has been retained as Pacific Union's investment bank. "The interested parties may have to swallow hard and figure out what it's worth."

Anticipation of a sale has boosted shares of Pacific Union by 10 percent in the three weeks through Sept. 17, to $19.52 each. McMahon believes the bank is worth between $22 a share to $25 a share, or from $233 million to $265 million. But he suggests a "scarcity premium" may be factored into the price.

"There's a tremendous sense of pride among the Korean-American banks and they all consider themselves to be consolidators," he said.

Topping any list of potential buyers is $1 billion-asset Nara Bancorp Inc., the most acquisitive local Korean-American bank.

Not only has Nara expanded on the East Coast, but it also has purchased branches in New York from Korea Exchange Bank one in Queens in 1998 and another in Manhattan last month.

"Obviously, a bank like Nara would be interested," said Benjamin Hong, Nara's chairman, although he added that a deal probably won't happen anytime soon because of the regulatory environment.

A purchase by Nara could result in substantial cost savings because the two banks have overlapping local branches, analysts said.

Other local bankers are mulling whether they can stomach what is expected to be a high purchase price.

Jack Choy, chief credit officer at $1.6 billion-in-assets Hanmi, said some banks could not consider a purchase because of a lack of funding.

"Even if you paid $200 million for Pacific Union, that would result in a tremendous change for the financial picture," Choy said. "The question is, at what cost?"

Already, Korean-American banks have been engaged in discussions about how to maintain profits in a saturated market. Because most of the banks cater to the first generation of Korean Americans, there is active debate about how top executives can woo the second generation of business owners, many of whom have gone to elite colleges and settled in communities not identified as Korean.

Banks based outside of California could add another twist to the bidding war.

Woori America Bank, a unit of Korea's Woori Financial Group, has already announced its interest in buying Pacific Union.

Last year, Woori, which has $382 million in assets, outbid Nara to buy Fort Lee, N.J.-based Panasia, a unit of National Penn Bancshares Inc.

A longshot bid could also come from Kookmin Bank, Korea's largest commercial bank, although some analysts discount such a scenario because that bank is taking large write-offs for its troubled credit card division.

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