Reply #21: And One From California--The Big One! [View All]

[Demeter]

United Commercial Bank, San Francisco, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with East West Bank, Pasadena, California, to assume all of the deposits of United Commercial Bank. This agreement included all U.S. branches of United Commercial Bank, the Hong Kong branch of United Commercial Bank, and the subsidiary of United Commercial Bank headquartered in Shanghai, China, United Commercial Bank (UCB-China).

The 63 U.S. branches of United Commercial Bank will reopen during their normal business hours beginning tomorrow as branches of East West Bank. All locations in Hong Kong and China will reopen on Monday, according to normal business hours. In addition, UCB-China, the Shanghai, China, subsidiary of United Commercial Bank, which was also part of today’s transaction, will continue its regular banking operations without interruption with the full support of its parent company, East West Bank, whose qualification has already passed the preliminary review by the China Banking Regulatory Commission.

Depositors of United Commercial Bank will automatically become depositors of East West Bank. Domestic deposits will continue to be insured by the FDIC, and the Hong Kong deposits will continue to be covered by the Hong Kong Deposit Protection Scheme and the full deposit guarantee currently in force in Hong Kong. The FDIC continues to be in close cooperation with the Chinese banking regulatory authority regarding regular operations of UCB-China.

Customers should continue to use their existing branch until they receive notice from East West Bank that it has completed systems changes to allow other East West Bank branches to process their accounts as well.

This evening and over the weekend, depositors of United Commercial Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of October 23, 2009, United Commercial Bank had total assets of $11.2 billion and total deposits of approximately $7.5 billion. East West Bank paid the FDIC a premium of 1.1 percent for the right to assume all of the deposits of United Commercial Bank. In addition to assuming all of the deposits of the failed bank, East West Bank agreed to purchase approximately $10.2 billion in assets of the failed bank. As part of the purchase and assumption agreement, the FDIC transferred to East West Bank all qualified financial contracts to which United Commercial Bank was a party and those contracts remain in full force and effect.

The FDIC and East West Bank entered into a loss-share transaction on approximately $7.7 billion of United Commercial Bank's assets. East West Bank will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.4 billion. East West Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. United Commercial Bank is the 120th FDIC-insured institution to fail in the nation this year, and the 14th in California. The last FDIC-insured institution closed in the state was Pacific National Bank, San Francisco, which closed on October 30, 2009.

INTERNATIONAL, NO LESS!

WONDER IF THERE ARE ANY BANKS IN WASILA IN NEED OF FDIC TREATMENT?



United Commercial Bank Fact Sheet: Discussion of Additional Issues

Cause of Failure

United Commercial Bank (UCB) had substantial concentrations in commercial real estate lending and acquisition, construction and development loans in the declining U.S. real estate market. Earlier identification of problem loans may have been impeded through alleged fraud exercised by former senior management, currently under investigation by the relevant authorities. Loan losses depleted earnings and eroded capital. The FDIC issued a public Cease and Desist Order on September 3, 2009 where the FDIC and California Department of Financial Institutions stated that there was reason to believe that the Bank had engaged in unsafe and unsound banking practices. The Order raised specific concerns with respect to management's use of policies and practices that were detrimental to the Bank and jeopardized the safety of its deposits. United Commercial Bank Holdings issued a press release on September 8, 2009 announcing the departure of UCB's CEO and COO and the adoption of the findings and recommendations of the company's Investigation Subcommittee of the Board Audit Committee's independent investigation that allowed the UCB to move forward with its financial restatement.

International Operations

The resolution of UCB demonstrates value, and prospects, for international cooperation in resolutions of banks and other financial firms. The key factor was early contact with foreign supervisors, careful discuss and understanding of their authority and prerogatives, and the flexibility to structure a transaction that accommodates their statutory requirements while ensuring a "least costly" resolution for the FDIC. These contracts helped to ensure a "whole bank" resolution by facilitating the smooth purchase of the branch operations in Hong Kong and the subsidiary in China. The FDIC did not incur any loss to the DIF from completing a whole bank transaction, and in fact reduced the DIF exposure by avoiding ring fencing by foreign authorities. Planning with the Hong Kong Monetary Authority and the China Bank Regulatory Commission about the resolution of UCB has been ongoing since discovery of the problems

Impact on Holding Company

UCBH Holdings, Inc., the holding company of UCB, was approved by the Treasury Department for $298.7 million in capital through the TARP CPP on November 6, 2008 through the procedures established by the program.

Policy Statement

To complete this transaction, the holding company of the acquirer raised equity capital. The FDIC's recent Statement of Policy on Qualifications for Failed Bank Acquisitions does not apply to an established bank holding company's acquisition of deposits and assets from a failed institution. The FDIC encourages private equity participation in failed bank acquisitions through private investment in established bank holding companies.