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Minsheng 'planning to raise stake' in California bank

(China Daily)
Updated: 2009-10-07 07:02

China Minsheng Banking Corp is weighing plans to increase its stake in UCBH Holdings Inc, the California lender operating under an enforcement order from banking regulators, to bolster its capital, said two people briefed on the matter.

Minsheng, China's first privately owned bank, plans to seek US regulatory approval to boost its holding in San Francisco-based UCBH to at least 50 percent from 9.6 percent, the people said, declining to be identified because the talks are private. Minsheng already has an option to raise its stake, to about 20 percent.

The Beijing-based bank "has been the vanguard inside China in terms of trying to be more consumer-oriented", said Daniel Rosen, principal of the Rhodium Group in New York and a visiting fellow at the Peterson Institute for International Economics in Washington.

"It doesn't surprise me they would contemplate doubling down their position in a second-tier niche American bank like UCBH. It would be a good incremental step for them."

Increasing Minsheng's investment would allow it to learn more about the US banking market and protect its holding in UCBH. Minsheng has plowed $126 million into UCBH since October 2007 and is the bank's biggest shareholder. UCBH stock has lost 97 percent since then, cutting the bank's market value to $79 million. The shares advanced 13 percent on Monday.

UCBH had $12.7 billion in assets and $7.9 billion in deposits at the end of June, according to the Federal Deposit Insurance Corp. The lender received $298 million from the US government's Troubled Asset Relief Program in November.

Minsheng would need approval from regulators to boost its stake, said James Barth, a former chief economist at the Office of Thrift Supervision.

Related readings:  Minsheng net better than peers  Minsheng Bank net profit up 1.6% in Q1  Minsheng bank to be listed in HK within 2009  Bankers show confidence in economy, banking industry in Q3

Minsheng plans to push for greater management control of UCBH and will seek to help rid the lender of some of its non-performing loans, the people said, adding that details of the rescue are still being worked out. UCBH in September 2008 said it named Wan Qingyuan, a Minsheng appointee, as a board member.

Regulators "look to see who is exerting control over the bank", said Barth, who is now a professor of finance at Auburn University in Alabama.

"It all has to do with the regulatory authorities determining if a bank is going to operate safely and soundly. You want to make sure that foreign bank is in good financial condition."

Li Limin, a Beijing-based press officer at Minsheng, declined to comment, as did Steve DiMattia, a UCBH spokesman.

UCBH said on September 8 it would restate second-quarter earnings and boost provisions for loan losses to as much as $390 million, up from an earlier estimate of $330 million, after a probe found that some officers improperly modified loans and misrepresented data to auditors. Thomas Wu stepped down as UCBH's CEO as a result.

Two days later, UCBH was given 60 days by the Federal Reserve to come up with "the source and timing of additional funds necessary" for the holding company and its banking unit, United Commercial Bank. San Francisco-based UCBH has two months to submit a cash flow projection for 2009 and 2010.

Even with Minsheng's added investment, UCBH may not have enough capital to meet regulatory requirements, according to Lana Chan, an analyst at BMO Capital Markets.

"Given the market cap of $70 million, a 50-percent stake probably wouldn't raise enough to fill the capital hole we are estimating," Chan said in an interview on Monday. "That's pretty simple math."

Chan estimated that UCBH needs to raise about $600 million of common equity to bring its Tier 1 capital ratio to 12 percent. UCBH reported a Tier 1 ratio of 6.4 percent at the end of June, according to BMO.

Minsheng, founded in 1996 by 59 private investors including pig-feed tycoon Liu Yonghao, has lagged behind bigger rivals including China Merchants Bank Co and China Citic Bank Co in expanding outside its home market. Chairman Dong Wenbiao said in March that Minsheng may boost its stake in UCBH if it finds a "good opportunity".

Bloomberg News