By JAMES RUFUS KOREN
Monday, July 28, 2014 (View Original Article)
BANKING: Investment in Pan American could pay off in public-service benefits.
To most potential investors, Pan American Bank looked like a money-losing institution that was outgunned by competitors and on the brink of failure. Not a good bet.
But to the 16 West Coast banks that last week invested $6.3 million into Pan American, saving it from closure, the East L.A. lender looked like something else: a way to get credit from bank regulators, now and for years to come.
A federal law that requires banks to serve poor neighborhoods also encourages them to invest in certain kinds of banks – those that are minority owned, or work in poor and underserved areas. Pan American, the oldest Latino-owned bank in California, is both.
Noor Menai, chief executive of downtown L.A. lender CTBC Bank Corp. (USA), one of the 16 Pan American investors, said that’s how he justified participating in the deal.
“We have a mandate to invest in the community,” Menai said. “This falls into that category of investing in your community in an innovative way. It’s a fantastic opportunity.”
It’s the same story for the other banks that participated in the deal. The L.A. banks are Koreatown lenders BBCN Bancorp Inc., Wilshire Bancorp and Hanmi Financial Corp.; downtown’s Grandpoint Bank and Preferred Bank; Chinatown’s Cathay General Bancorp; and Century City’s PacWest Bancorp.
Mick Grasmick, a partner at L.A. law firm Manatt Phelps & Phillips who advised CTBC and other banks on the deal, said clients wanted to make sure their investment would count toward their requirements under the Community Reinvestment Act, or CRA.
“Clearly banks looked to whether this was the right investment for them and whether they’d be able to add it to their list of CRA-compliant activities,” Grasmick said.
None of the investing banks owns more than a 4.9 percent stake in Pan American. Bank founder Romana Bañuelos and her family remain Pan American’s majority shareholders, meaning the bank remains minority owned, preserving a benefit under the CRA.
Now and later
In the short term, banks can expect credit from regulators for their investment in Pan American. But in the years ahead, they could get additional CRA credit by lending to Pan American’s customers.
Robb Evans, a turnaround consultant who took over as Pan American’s chief executive last week, said he expects the investing banks will work with Pan American if customers need large loans or other services the small lender can’t provide on its own. (The previous chief executive, Jesse Torres, left in April.)
By arranging for its partners to provide larger loans and services, Pan American can hold on to customers, while letting the bigger banks into the low-income East L.A. market. That gives them CRA credit, too.
“These are banks that are anxious to lend in this community,” Evans said. “They’re looking for our help to do that. This should be a good marriage.”
This isn’t the first time banks seeking CRA credit have helped out a local lender. Several times in the past decade, BBCN and Cathay have bought stock or loaned money to Mid-Wilshire savings and loan Broadway Financial Corp., the only black-owned lender west of Dallas.
Still, even knowing they could get CRA credit by investing in Pan American, the deal wasn’t a sure thing.
Pan American is the smallest bank in Los Angeles County and hasn’t been profitable since 2005. César Rosas, the bank’s vice president of finance, said he worked for the past two years on recapitalizing the bank, but at least three investor groups walked away from deals over the past year.
Francisco Leal, a Long Beach attorney on the bank’s board, said the most recent failed deal unraveled in May. It involved a bank and other investors, and the promise of CRA credit wasn’t enough.
“It all turned on a particular bank coming forward and putting in a certain amount of money,” Leal said. “But they looked at our portfolio and they just weren’t convinced.”
Timothy Chrisman, chairman of downtown executive search firm Chrisman & Co., helped broker last week’s deal and said that the recapitalization came together in part because bank regulators were desperate to keep Pan American open. Rather than close the bank, they allowed the deal to go through without some of the usual scrutiny.
For instance, regulators would typically have to approve a business plan before signing off on such a deal. In this case, regulators allowed Pan American and investing banks to skip that step, with the understanding that a new business plan will be developed.
Still, banks that participated in the recap had questions of their own.
“I’d call a CEO and they’d say, ‘That sounds great,’” Chrisman said. “Then I’d get a call from the CRA officer or the chief credit officer and they’d say, ‘This looks like kind of a crappy investment.’”
June 2, 2014 (View Original Article)
Boyden’s Leadership Series presents discussions with business and thought leaders from organizations across the globe. The series focuses on topical issues that offer executives, political leaders and the media insight into current trends in business and talent management in the global marketplace. This issue features Noor Menai, President & CEO of CTBC Bank Corp. (USA). He discusses industry consolidation, implementing cultural change, the ecosystem of risk, how Chief Risk Officers are the next CEOs, and why the smartest people in the room are often the most dangerous.
By Kate Berry
MAR 17, 2014 1:11pm ET (View Original Article)
The anemic home lending market has prompted some banks to ratchet up lending to foreign nationals.
Lending to foreign nationals buying U.S. real estate has become a profitable niche akin to making interest-only loans or jumbo loans to wealthy, high net-worth borrowers. Because foreign borrowers typically do not have a traditional FICO score, such loans do not conform to mortgage regulations that went into effect in January, so they do not have the ultra-safe "qualified mortgage," classification.
But in the current tough lending environment, some banks are still willing to take that risk. Loans to foreign nationals typically require downpayments of 25% to 30% and plenty of cash on hand in a current account. Some lenders think that honing their expertise at identifying foreign borrowers that they consider good credits will help them do so for other borrowers. Picking up the deposits of foreign nationals also gives banks a chance to cross-sell products.
"It's an opportunity for us to get our capital out there and develop new relationships," says Brian Constable, an executive vice president and head of retail banking at $1.5-billion-asset CTBC Bank, formerly ChinaTrust Bank, in Los Angeles.
CTBC saw a 133% jump in lending to foreign nationals last year compared to a year earlier, through its 12 branches in Los Angeles, New York and New Jersey, Constable says. Financing is available for up to 70% of the purchase price for three-year to five-year loans.
Though most banks want three to five years of credit history, CTBC may take just one year because it can pull the credit history of the borrower by tapping their assets and liability from its Taiwanese parent CTBC Bank, the former Chinatrust Commercial Bank.
"These borrowers may have a significant downpayment of 30% to 40%, they have been in the U.S. for a couple of years and we can look at their bank statements and income in their accounts to make sure they have the ability to make those payments going forward," Constable says.
Peter Alongi, a specialized mortgage sales manager at HSBC New York, says loans to foreign nationals represented 25% to 30% of HSBC's residential lending volume last year. China represents the biggest opportunity for the international bank, and he believes the Chinese government may loosen restrictions on private citizens from taking more than $50,000 a year out of the country.
The international bank with offices in 81 countries requires a minimum downpayment of 25% and will lend up to $3 million. But borrowers must maintain a premier relationship with the bank by having at least $100,000 in an account.
"The intention here is to maintain these customers on balance sheet, and service them from a wealth perspective. We want to be their financial advisor," Alongi says. "The foreign national buyer is an intricate one and has to be understood as far as risk."
HSBC has an internal process whereby it creates a foreign credit report for foreign national borrowers based on their income, assets and liabilities that fall outside the U.S., he says. This assessment, combined with high downpayments, ensures the loans are far less risky and gives the bank confidence of the borrowers' ability to repay the loan.
Some mortgage lenders such as New Penn Financial, a unit of Shellpoint Partners, the New York firm backed by the mortgage-bond pioneer Lewis Ranieri, have securitized loans to foreign nationals in the past. But investors typically want a discount when loans to foreign nationals are included in securitizations, which has put a kibosh on securitizing such loans as an exit strategy, some experts say.
Home sales to nonresident foreigners made up just 5% of the all U.S. home sales. But some markets like Florida have been dependent on foreigners to spur a housing recovery. Roughly 20% of home sales in Florida were estimated to have been made to non-resident foreigners in 2013, but 82% of those were all-cash buyers, according to a report last year from NAR. The majority of international buyers are concentrated in five states: Florida, California, Texas, Arizona and New York, NAR has found.
Jed Smith, an economist with the National Association of Realtors, says most foreigners have to have an existing relationship with a bank to facilitate getting loan otherwise it can be "very, very difficult," which is why so many foreign nationals purchase U.S. property with cash.
"Sixty percent to 70% of foreign buyers do not get loans and that's why many are all-cash borrowers, what we refer to as high rollers," Smith says.
Judy Hamblen, a Fort Lauderdale, Fla., mortgage broker with Sentrix Financial Services, says banks are missing out on making loans to foreign nationals, which represent roughly $68 billion a year in total mortgages in the U.S.
"There are an awful lot of foreigners buying with all cash partly because they can't get a loan," Hamblen says. "Community banks have the ability to portfolio these loans. I smack my head thinking how much income that could generate for people in the (mortgage) industry, and how it could help the borrower preserve capital. When you're putting a 25% downpayment, in some respects it's a safer loan than a Federal Housing Administration loan."
Though CTBC kicked off its foreign national program in 2009, in the middle of the housing downturn, the alternative full-documentation loan program really took off last year. Constable says CTBC had "the best six months in mortgage funding in the history of the bank, based on loan volume and the amount of files we closed. It looks and smells like a standard loan program."
Bill Owen, CTBC's first vice president and mortgage operations manager, is looking to create a similar product for owners of apartment buildings with up to four units, and potentially expand the product more broadly to other customers.
"We're looking at ways, as are other banks, to work within the guidelines," says Owen.
Rick Soukoulis, the CEO of Western Bancorp, a California wholesale lender, says he is originating five-year adjustable-rate mortgages to foreign nationals that have had a job in the U.S. for two years. He sells the loans to credit unions.
"If they've been here working with money in the bank, we like 'em," he says.
By Los Angeles Business Journal
Feb 10, 2014 (View Original Article)
On Friday, January 31st, the Los Angeles Business Journal and the San Fernando Valley Business Journal teamed to host a roundtable- style discussion on economic trends and forecasts for Los Angeles County and Southern California. Our panel of regional experts shared their insights on the biggest headlines of 2013 and where they feel the market is going this year. Moderated by the Los Angeles Business Journal’s Publisher and CEO, Matt Toledo, the discussion was spirited, informative and insight- ful. What follows is a transcript of the conversation.