Cathay General Bancorp, the parent of Cathay Bank, has purchased a 20 percent stake in Shanghai-based First Sino Bank, giving its U.S. and Hong Kong customers the ability to directly finance the production of goods and the building of new facilities in China.


While many banks in the U.S. are buying stakes in China's government-owned banks, Cathay bought its $52.2 million stake in First Sino from Lotus Worldwide Limited, a Taiwanese group that controls 65 percent of the bank.


Cathay, an L.A.-based company with $6 billion in assets and 37 branches, serves the Chinese banking market in the U.S., while First Sino, with $630 million in assets and five offices, caters mostly to Taiwan and Hong Kong businesses in China.


Cathay has three representative offices in China, but they cannot take deposits or make loans. The deal gives Cathay the right to appoint two members to First Sino's 10-member board.


The acquisition, which will be only modestly accretive to 2006 earnings, "gives Cathay the opportunity to expand in China in a much more meaningful way and arguably with less risk than a full acquisition," said Joe Morford, a banking analyst at RBC Capital Markets in San Francisco. Morford raised his price target on Cathay to $42 a share last week. It traded at more than $38 late last week.

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