East West Bancorp acquires competitor; shares soar

East West Bancorp shares climb after acquisition of United Commercial Bank

• On 12:19 pm EST, Monday November 9, 2009

PASADENA, Calif. (AP) -- Shares of East West Bancorp Inc. shot upward Monday after it acquired a San Francisco-based competitor in a deal analysts said will improve earnings and expand market share.

East West Bancorp, based in Pasadena, Calif., acquired $10.4 billion in assets and $9.2 billion in liabilities from United Commercial Bank on Friday. The deal was arranged by the Federal Deposit Insurance Corp., which will share any losses on $7.7 billion worth of loans acquired.

The acquisition came as government regulators pressured United Commercial Bank to improve capital by as much as $600 million, which BMO Capital Markets analyst Lana Chan said was unlikely because of credit quality and other financial issues. UCB became the first commercial bank to receive federal TARP money to fail, Chan said. It had received $298.7 million from the government.

East West Bancorp shares rose $4.30, or 50 percent, to $12.95 in midday trading. Shares have traded between $3.24 and $16.64 in the past year.

With the acquisition, East West Bancorp expands its business into the Chinese market in both the United States and China since UCB was one of the three largest bank in the Chinese-American niche, Chan said.

In a note to investors, she said the deal is positive for East West Bancorp because it removes one major competitor, will improve earnings and is a low-risk transaction.

She maintained the "Outperform" rating on the stock and increased the price target to $15 from $12.

She adjusted the 2009 estimate to a profit of $3.54 per share from a loss of $3.69 and the 2010 estimate was increased to a profit of $1 per share from a loss of 5 cents per share and the 2011 estimate to profit of $1.50 per share from a previous loss of $1.20.

SunTrust Robinson Humphrey Inc. analyst Jennifer Demba said the acquisition makes East West Bancorp California's second largest bank. With 63 additional offices, the company will have $19 billion in assets and 133 branches in the United States. It also will have four branches in China.

She said East West Bancorp continues to be a "very credit-challenged bank due to its large California focused real estate portfolio." The merger, however, will give the company more earnings power to absorb credit loses.

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