Two Chinese American banks in California are locked in a bidding war to buy a small financial institution in New York, part of a scramble to increase market share and buy up small banks with niches in growing Chinese communities.

While Great Eastern Bank only has $310 million in assets, it provides an expansion into New York's ethnic Chinese banking market for either Cathay General Bancorp, the Los Angeles-based holding company for Cathay Bank, and UCBH Holdings Inc., the San Francisco-based parent of United Commercial Bank. Great Eastern has five branches, two in Manhattan, two in Flushing, Queens and one in Brooklyn.

"Both of these banks really want to bulk up their presence in New York and they're willing to pay a big price," said Scott Carmel, an analyst at Moors and Cabot Inc. in Boston. "Now all the Chinese American banks will expect to get higher bids."

The deal for Great Eastern is part of an aggressive expansion strategy adopted by both Thomas Wu, UCBH's chairman and chief executive, and Dunson Cheng, Cathay's chairman and chief executive, in the race to get to $10 billion in assets.

Analysts say that's the tipping point for Chinese American banks to become viable takeover targets. But paying too much for asset growth could backfire as interest rates rise in the next 18 months and real estate prices dip.

Some analysts believe that Dominic Ng, president and chief executive of East West Bancorp Inc. in San Marino, is taking a more measured approach by focusing almost exclusively on California (though East West has one branch in Houston.)

East West, with $7.8 billion in assets, completed its acquisition in September of San Marino-based United National Bank, with $948 million in assets.

Needs regulatory approval
The deal to buy Great Eastern hinges on whether Cathay receives Federal Reserve Board approval to buy a 41 percent stake from a group of shareholders not aligned with the bank's board. Cathay, with $6 billion in assets, paid $28.4 million for option agreements to purchase the shares and plans to use its stake to block any other deal.

William Laraia, Great Eastern's president and chief executive, filed a protest letter with the Federal Reserve Board, claiming that Cathay's attempt to accumulate options could lead to "uncertainties and controversies."

"This is like an old-fashioned battle of chess," said Henry Fields, a partner at Morrison & Foerster, who specializes in Asian banks. "No one can predict the outcome of the situation."


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