Shareholders Push for Sale of Ethnic Chinese Bank
By ANTHONY PALAZZO
Institutional shareholders of GBC Bancorp., unhappy over the refusal of several board members to sell the bank holding company despite offers that value the company at twice its current market value, are mounting a campaign to push for a sale.
GBC is parent of one of L.A.’s most prominent ethnic Chinese banks, General Bank. Its stock has suffered with disclosures of loan losses borne of an ill-conceived expansion into syndicated loan participations, and its management has lost the confidence of Wall Street. Yet the bank’s suitors, eager to expand into the lucrative Los Angeles market, remain interested in a buyout.
It is unclear what additional pressure, if any, shareholders will apply to GBC’s divided board, beyond numerous letters already sent urging full consideration of the offers, which were first reported by the Business Journal on June 24.
However, sources said the stock’s slide in recent weeks has attracted at least one institutional buyer that is known to be a shareholder activist, setting the stage for heightened conflict with the board.
“(This) may not be the kind of board that will control its own destiny, but instead their destiny will probably have to be defined by shareholder litigation or other hostile activity,” said David Harvey, president of Hot Creek Capital LLC, owner of about 127,000 GBC shares.
Harvey wouldn’t say whether he is considering legal action himself. But he said he doesn’t believe GBC’s current board, made up of Taiwanese business people and members of the family that controls the largest block of its stock, “understands the depth of the stigma that has attached itself to the current management.”
GBC’s 13-member board includes four members of the Wu family, who together own about 13 percent of the shares, including Chief Executive Peter Wu. According to sources, the Wu family board members are opposed to a sale and want to give Peter Wu the chance to lead the company out of its problems.
Others on the board, including company Chairman Li Pei Wu (no relation to Peter Wu), are said to favor a sale. However, Li Pei Wu hasn’t been able to line up the necessary seven votes in favor of either of the two deals that are said to be on the table.
Calls seeking comment from Peter Wu, Li Pei Wu and one other board member were not returned. The other board members could not be located.
As the Business Journal first reported, two suitors HSBC Bank USA, a unit of global banking concern HSBC Bank Plc, and San Francisco-based UCBH Holdings Inc., parent of United Commercial Bank had made offers for GBC.
The offers, said to be above $40 a share, came as GBC’s stock had sunk to the $27 a share range after disclosures of $27 million in loan losses made through a syndicate to a company that turned out to be fraudulent.
The buyout offers are still on the table, sources said, even though GBC has since disclosed another $7.3 million in bad loans, this time to a commodity trading concern, and the stock price has slid further.
HSBC Bank USA officials declined to comment, citing company policy not to comment on rumors or speculation.
UCBH Chief Financial Officer Jonathan Downing declined to comment on GBC. On July 3, UCBH agreed to buy 25 percent of privately held Bank of Canton of California, based in San Francisco. It is negotiating to acquire the remaining interest. Downing said UCBH gets more than 50 percent of its new customers from Southern California, and it would continue to evaluate acquisition options as they came along.
In a July 19 conference call following GBC’s second quarter earnings report, analysts asked Peter Wu a series of pointed questions about the bank’s asset quality and the reasoning behind its sale of $207 million of securities during the quarter. The sales boosted near-term earnings at the expense of longer-term profitability. GBC has not closed the New York office, where most of the bad loans were originated, and Peter Wu insisted on the call that an expansion in Boston will go ahead as planned.
After the call, analysts cut their earnings targets for the company, and the stock price fell as low as $18.82. Recently it rebounded to around $21.
A number of institutional investors, however, remain angered by the board’s unwillingness to go forward with a sale in light of the stock’s performance and management’s own lack of credibility.
“I think they’re derelict,” said Dan Boyle, a partner in Schwerin Boyle Capital Management in Springfield, Mass. “They let this stuff go on under their watch, not being disciplined and not having policies and practices in place, and then hurt the company further by thus far not choosing an alternative that’s good for shareholders.”
Meanwhile, signs of the strains within the company are beginning to show through. Li Pei Wu was absent from the company’s July 19 conference call, during which Peter Wu blamed problems with the New York office on “previous management.”
(Li Pei Wu relinquished the chief executive title to Peter Wu in December 2000, although both Peter and Li Pei Wu have worked together at the bank since the early 1980s.)
Peter Wu said the bank has tightened its lending standards, and he was confident the same mistakes would not be repeated. He also said he was confident that all the problem loans had been found.
But shareholders are not satisfied. They say current management won’t be able to win back investors’ loyalty, and that will permanently impair the stock price.
“There is no confidence in Peter Wu’s ability to run this institution,” Boyle said. “I wonder if the directors understand their fiduciary responsibilities.”