Koreatown is abuzz with speculation that the banking scene there is poised to undergo a transformation.
Nara Bank, one of the largest financial institutions headquartered in the bustling Mid-Wilshire district, is eyeing a major acquisition. Wilshire State Bank said it, too, is interested in buying.
Meanwhile, mounting capital concerns at several prominent Korean-American banks could force consolidation, analysts said.
Investors believe Nara is the most ready buyer. In late October, it sold stock in a secondary offering that netted the bank more than $80 million. Since then, Nara’s stock has surged more than 50 percent to close Jan. 7 at $11.28.
“The speculation’s been going around,” said Joseph Gladue, an analyst with West L.A.-based B. Riley & Co. “That’s been behind a lot of the strength in Nara Bank’s stock.”
L.A.’s 10th largest depository institution with $3.2 billion in assets, Nara may be seen as a front-runner in the race to pick up a rival. But analysts said not to count out Wilshire, another Korean-American bank, with $3.4 billion in assets.
The likeliest targets, analysts said, are two local banks that have received regulatory enforcement orders in the past two months: Hanmi Financial Corp. and Saehan Bancorp.
Hanmi, in particular, would be a major pickup for any local bank. With assets of $3.5 billion, Hanmi is the largest Korean-American bank and a merger with another institution would instantly make the acquirer by far the largest in the Korean-American space.
Nara executives have remained guarded about their intentions, but in an interview last week, Min Kim, chief executive of Nara Bancorp Inc., acknowledged that management has looked at both Hanmi and Saehan since it was revealed that they had received regulatory orders.
Whether either one becomes available remains to be seen, but Kim said she hopes to be able to use the capital raised in October to make an acquisition, perhaps one assisted by the Federal Deposit Insurance Corp.
“That was our primary goal with the capital,” she said. “There will be changes to our marketplace. There will be more consolidation due to failures of local banks. There will be opportunities for us to expand our market share.”
Meanwhile, Wilshire, one of Nara’s top competitors, has filed a shelf registration to raise as much as $100 million, and executives said they are looking for acquisition opportunities.
“Absolutely – we are very interested and will continue to pursue those FDIC opportunities,” said Alex Ko, chief financial officer of Wilshire Bancorp Inc., the bank’s parent.
In late June, Wilshire acquired the assets of Mirae Bank, a small Korean-American institution that was closed due to losses incurred from bad loans. The integration is now complete, Ko said, and Wilshire was able to retain more than 90 percent of Mirae’s deposits.
Ko declined to name the banks Wilshire is now watching – saying only that Hanmi and Saehan “are very valued as peers ” – but acknowledged the bank is interested in purchasing a failed bank, “especially if it is in our market.”
One bank analyst who asked not to be named said, “Wilshire and Nara both want Hanmi.”
Hanmi did not return calls seeking comment, but is believed to be seeking investors in South Korea. Also, Woori America Bank, a subsidiary of a South Korean bank, is said to be interested in acquiring Hanmi.
Meanwhile, Daniel Kim, chief financial officer at Saehan, which has been traditionally tight-lipped, acknowledged rumors were swirling the bank was a prime acquisition target. However, he knows of no banks that have made formal overtures about an acquisition.
Hanmi, which opened in December 1982 with a branch on Olympic Boulevard, grew modestly at first, but accelerated its growth in the late 1980s and early 1990s. By 1998, the bank passed Pacific Union Bank to become the largest in the increasingly competitive Korean-American space. Hanmi then proceeded to expand rapidly through the acquisition of several competitors, including Pacific Union.
However, with startup banks multiplying and financial giants becoming increasingly active in Koreatown in the last decade, many established Korean-American institutions dropped their underwriting standards to remain competitive. That led to problems in the recent economic downturn. Since the beginning of 2008, Hanmi has lost nearly $200 million.
In November, with capital levels on the decline, the bank said it entered into a so-called final order with the California Department of Financial Institutions and a written agreement with the Federal Reserve Bank of San Francisco to develop a capital maintenance plan. Among the provisions, Hanmi was ordered to raise $100 million in new capital by July.
The bank recently secured a $7 million investment from a South Korean firm and has filed forms to raise as much as $200 million in the near future.
And though the capital markets have not been particularly friendly to banks with heavy losses, Gladue pointed out that three other Korean-American institutions – Nara, Wilshire and Center Financial Corp. – have successfully raised capital recently.
“Those banks have been able to tap a lot of money within the Korean-American community,” he said. “Obviously Hanmi is in a little bit of a different situation, but there is a lot of money within the Korean-American community.”
Saehan’s outlook is a bit cloudier.
Nearly 10 percent of Saehan’s loans are nonperforming and its return on equity in the third quarter was negative 52 percent, among the worst of all local banks. Its total risk-based capital ratio stands at 6.3 percent, far below the 10 percent level regulators consider well-capitalized.
The institution has not said how it intends to raise capital, but in a statement after its entry into a regulatory consent order, the bank alluded to talks with private investors in the United States and South Korea.
Kim would not comment on those talks, saying, “There are a number of actions we are currently undertaking, but they are all confidential.”
With assets of $800 million, Saehan would not be the game-changing acquisition that Hanmi would, but analysts said it would nonetheless be attractive to any number of local banks.
Still, an acquirer would need to weigh the prospects of a prolonged downturn in the industry. This year could prove especially challenging for Korean-American banks, which have substantial exposure to commercial real estate. Analysts expect commercial real estate loans to go bad this year and next.
If the challenges do turn out to be severe, Aaron James Deer, an analyst with New York-based Sandler O’Neill & Partners, said it could be beneficial for the Korean-American financial community, which has been criticized as overbanked.
“There’s definitely room for some consolidation within the Korean-American banking niche,” he said.
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