By Ashley Bryan and Jesse Blouin
The Contrary Investor
Chinese Banks - Increasing numbers of highly skilled Chinese immigrants are entering the labor force creating growth prospects for companies that cater specifically to the Chinese immigrant population. Among the industries to benefit the most is Chinese-American banking.
Asian American culture contains a high work ethic, respect for elders, and high valuation of family. They also statistically have high household income and low incarceration rates. Economically, Asian American businesses accounted for over 1.1 million U.S. companies in 2002. Those businesses employed more than 2.2 million people nationwide and earned more than $326 billion in corporate revenue. Due to this and other factors, Chinese-American immigration is growing at a rapid rate. In fact, by the end of the 1990's, Chinese immigration had increased by more than fifty percent and is projected to represent over 4.7% of the total U.S. population by the end of 2010.
Chinese-Americans are believed to be profitable banking clients. Compared to the general population, Chinese-Americans have higher savings rate, higher employment levels, and higher levels of education. They also tend to have a strong entrepreneurial spirit, an affinity for owning real estate and an appreciation for personal relationships in business. In addition, approximately forty percent of the Chinese-American population resides throughout California. So it's no surprise that the three banks catering specifically to this group - East West Bancorp (EWBC), Cathay General Bancorp (CATY), and UCBH Holdings (UCBH) - are well positioned for substantial growth.
East West Bancorp (Nasdaq: EWBCl; $33.58, www.eastwestbank.com) - is one of the largest financial institutions in the nation serving the Chinese-American community. It provides a range of personal and commercial banking services aimed at small and medium-sized businesses, business executives, professionals, and other individuals in California. It offers numerous lending services, as well as short-term trade finance facilities for the U.S. importers and manufacturers doing business in the Asian Pacific region. EWBC's wholly owned subsidiary, East West Bank, is the second largest full service commercial bank in Southern California. In addition, EWBC has three international locations in Hong Kong, Beijing, and Shanghai. Up to ninety percent of the bank's consumer clients are of Chinese descent. EWBC's recently reported strong 2006 annual earnings growth of thirty-two percent.
Cathay General Bancorp (Nasdaq: CATY; $30.41, www.cathaybank.com) - began with the mission of providing financial services to the growing but undeserved Chinese-American community in the greater Los Angeles are, soon becoming the first Chinese-American bank in Southern California. CATY offers various financial services for individuals, professionals, and small to medium-sized businesses primarily in California. It provides numerous deposit products, various loan products, Internet banking services, and other general banking services. Successive waves of immigration, burgeoning trade between America and Asia, and the economic development of the surrounding community have fueled CATY's rapid expansion. It services extend across the United States and overseas with a presence in Taipei, Shanghai, and Hong Kong. CATY recently reported 2006 annual earnings growth of thirteen percent.
UCBH Holdings, Inc. (Nasdaq: UCBH; $16.83, www.ibankunited.com) - is a leading bank in the United States serving Chinese communities and American companies doing business in Greater China. UCBH provides personal and commercial banking services to small-and medium-sized businesses. Further, the company provides trade finance facilities for customers involved in the import and/or export of goods principally between Asia and the United States. In addition to its fifty-plus branches in California, the company operates eight branches in New York, five branches in metropolitan Atlanta, three branches in New England, two branches in the Pacific Northwest, a branch in Houston, a branch in Hong Kong, and representative offices in China and Taiwan. UCBH reported 2006 annual earnings growth of three percent.
The three banks discussed have the opportunity to expand as the Chinese immigrant population keeps growing. Analysts are expecting five-year earnings growth of nine percent at CATY, eleven percent at UCBH, and ten percent at EWBC. In addition, although many banks are hurt when interest rates increase (due to the cost of its funds increasing while long-term loan rates are locked in) that is not the case with these banks. Each has enough floating-rate loans (which see earnings increase more than the interest rate the banks pay depositors) that the firms actually stand to make more money as interest rates very.
As Chinese immigration continues to introduce highly skilled, extremely productive employees into the U.S. labor force and the economy, the banking companies that target this market successfully will continue to see substantial growth."
Source: The Contrary Investor published by Fraser Management Associates, 309 S. Willard St., Burlington, VT 05401, 1 year, 12 issues, $125.
Fraser Management Associates (FMA) is an employee-owned, fee based investment advisor registered with the Securities and Exchange Commission in Washington, D.C. FMA has actively managed stock and bond portfolios for individuals, institutions, trusts, non-profit organizations, and employee benefit plans utilizing independent, contrarian thinking since 1969.
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