UPDATE: UCBH Unit Ordered To Cease Operating With Management
11 September 2009 - 10:05AM
Dow Jones News
UCBH Holdings Inc. (UCBH) released Thursday the text of a
sharply worded cease-and-desist order it received from regulators
that led to a replacement of its top management and was highly
critical of its board of directors.
The enforcement action by the Federal Deposit Insurance Corp.
and California Department of Financial Institutions, dated Sept. 3,
ordered UCBH's banking subsidiary, United Commercial Bank, to cease
"operating with management whose policies and practices are
detrimental to the bank and jeopardize the safety of its
deposits."
In addition, the bank was ordered to cease "operating with a
board of directors which has failed to provide adequate supervision
over and direction to the active management of the bank."
The order restricts the bank's lending and orders it to
"eliminate its reliance on brokered deposits." Such deposits had
grown strongly recently. And the order forces the bank to
aggressively classify, write off, and eliminate from its books its
troubled loans.
The regulators also demand a capital plan, and that, by Dec. 31,
its tier 1 capital ratio to be "no less than 12%."
Earlier Thursday, the Federal Reserve issued a written agreement
with UCBH, also ordering the bank to submit a capital plan and,
among other things, barring it from paying a dividend without the
Fed's approval.
The milder written agreement from the Fed, with regulates the
holding company, suggests that the company's problems are within
the FDIC and state-regulated bank unit. The bank and the company
have the same board and management.
BMO Capital Markets Corp. analyst Lana Chan wrote in a research
report, "Based on the current disclosure, we believe the situation
for UCBH is critical and the risk of an FDIC receivership is high."
She wrote East West Bancorp Inc. (EWBC) and Cathay General Bancorp
(CATY) "would be the most logical acquirers of UCBH in an
FDIC-assisted transaction."
UCBH had said Tuesday in a press release that its longtime chief
executive, Thomas Wu, had resigned, along with Ebrahim Shabudin,
who had served as chief operating officer and chief credit officer
for both the company and its bank unit. The company at the time had
disclosed that it signed the cease-and-desist order but hadn't
released the document.
The company also said in the release that it will replace Chief
Financial Officer Craig On, who will remain in his role until a
replacement is found and then become deputy CFO.
It is unclear what, if any, consequences the cease-and-desist
order has for the company's current board, which is also the board
of the bank. A spokesman for the company did not immediately return
phone calls.
However, the company said that its own internal investigation
found, among other things, "inappropriate modification of loan
terms to delay negative consequences," and "misrepresentation or
omission of relevant information" by "certain bank officers" to its
finance department and its auditors.
The enforcement action, published in a filing with the
Securities and Exchange Commission late Thursday, orders the bank
to "retain qualified management," particularly for the positions of
CEO, CFO and chief credit officer.
The bank needs to raise capital and increase its reserve for
loan losses, revise its lending policies, among other demands
listed in the order. It cannot pay a dividend without regulatory
approval.
-By Matthias Rieker, Dow Jones Newswires; 212-416-2471;
matthias.rieker@dowjones.com