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Korean Bank Bucks Tradition; Layoffs Planned in Acquisition

By KATE BERRY
Staff Reporter

How does a company get its stock price to jump through the roof? The short answer: Hire a new management team, make a big acquisition and send executives on a road show to get more analyst coverage.

And don't forget to lay off employees it can cut costs that directly hit the bottom line.

Executives in the banking world may want to take such a cue from Hanmi Financial Corp., the big Korean American community bank whose stock has traditionally lagged its peer group.

Two weeks ago, Hanmi's president and chief executive, J.W. Yoo, and its new chief financial officer, Michael Winiarski, went on the bank's first-ever road show talking to a few dozen institutional investors in New York and Chicago.

Just a few days later, on Feb. 12th, influential regional banking analyst Steve Didion at Hoefer & Arnett in San Francisco raised his rating on Hanmi to "buy" from "neutral."

Didion, who was traveling with the executives, also made positive comments about Hanmi's ability to realize cost savings from its acquisition in December of $1.1 billion-in-assets Pacific Union Bank. That purchase is expected to close in the second quarter.

Since the road show, Hanmi's stock has jumped more than $6 a share, or nearly 30 percent, to $28.70. So far this year, shares are up 44 percent and have risen 75 percent from a year ago.

Part of the stock price increase can be attributed to Didion's assertion that Hanmi, with the help of Castle Creek Capital LLC, a private equity fund in Rancho Santa Fe, expects to save $15 million over the next 18 months from the Pacific Union purchase. The company's 8-K had anticipated $11 million in cost savings.

"There are no hard numbers as far as cost savings go," Winiarski said. "Our 8-K sticks with the $11 million number but there are people very experienced in this area that think $15 million is achievable over time."

The costs savings will come primarily from the closure of as many as seven geographically overlapping bank branches, the layoff of between 100 and 150 employees, and consolidating certain functions, such as data processing.

Hanmi has already told its 650 employees that they can expect layoffs, though the company has not identified how many or which branches it plans to close.

Analysts who cover Korean American banks note that, unlike mainstream American companies, these institutions are often reluctant to lay off employees.

High price forgiven

Many analysts believe Hanmi overpaid for Pacific Union because other bidders pushed up the price to $295 million, or $27.64 a share, according to FTC Midwest Research in Nashville.

"I was a little surprised at the price, I thought it would be $2 to $3 (per share) cheaper," said Brett Rabatin, an analyst at FTC Midwest. "But with the real estate market in Southern California so strong, things will be fine for them in terms of loan growth."

To fund the deal, Hanmi raised $75 million from 15 investors including Hanmi directors through a private placement priced at $19 a share. The placement agent, Castle Creek, apparently is "shaping the integration of Pacific Union into Hanmi and ensuring that the envisioned cost savings are achieved," Didion wrote in his Feb. 12 report. Castle Creek will have one member on Hanmi's board.

Hanmi raised additional capital by offering an additional 6.2 million shares, $60 million of trust-preferred securities, and about $105 million in cash.

Investors also are bullish on Yoo, Hanmi's new president and chief executive, who joined the company July 1 and is hanging his reputation on the merger.

Yoo apparently restructured Hanmi's management team with a compensation structure that is more performance-based than in previous years.

Joe Gladue, an analyst at Cohen Bros. & Co. in Philadelphia, also attributed Hanmi's attractiveness to institutional investors who are now searching the last corners of the small-cap community-banking sector, which has been on a longstanding bull run.

"The whole sector has been on fire and Korean banks are performing strongly," he said.

In late January, Hanmi reported fourth quarter net income of $5.1 million, compared with $4.8 million for the like period a year earlier.

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