XLF, Banking and Financial Sector Stocks

Top 189. Aug 15, 2005 1:55 PM

» SteveT - Four Brokers Indicted

http://online.wsj.com/article/0,,SB11241...

August 15, 2005 3:52 p.m. EDT
Four Brokers Indicted
In 'Squawk Box' Case

By AARON LUCCHETTI
Staff Reporter of THE WALL STREET JOURNAL
August 15, 2005 3:52 p.m.

A federal grand jury has indicted four Wall Street brokers in the case involving abuse of Wall Street's internal communications, or squawk box, system.

Kenneth E. Mahaffy, Jr. and Timothy J. O'Connell, formerly of Merrill Lynch & Co.; Ralph D. Casbarro, formerly of Citigroup Inc.'s Salomon Smith Barney unit, and David G. Ghysels Jr., formerly of Lehman Brothers Holdings Inc., were indicted in U.S. District Court in the Eastern District of New York on Thursday.

The indictments were unsealed this morning. The primary charges were securities fraud and commercial bribery, a prosecutor's official said.

A lawyer for Mr. Ghysels said his client would plead not guilty at an arraignment later today. Lawyers for Messrs. Mahaffy and O'Connell couldn't be reached for comment. A lawyer for Mr. Casbarro had no immediate comment.

Federal prosecutors have been investigating1 whether the internal communication systems that broadcast confidential market information at several Wall Street brokerages were compromised for quick profit.

The Securities and Exchange Commission also brought civil charges against the four brokers and a day trader, John J. Amore, who was charged with paying the brokers in return for live access to the brokerage firms' squawk boxes.

According to the SEC, Mr. Amore directed traders working for him to listen to the squawk-box information, which included tidbits about what the brokerage firms' large institutional clients wanted to buy and sell. By purchasing and selling stock ahead of such large institutional orders, Mr. Amore's traders were able to profit at the expense of those large customers' orders.

The day traders, operating out of the firm where Mr. Amore worked as an executive, A.B. Watley Inc., traded ahead of orders they heard on the squawk boxes of Citigroup, Merrill Lynch and Lehman more than 400 times, making gross profits of more than $650,000, the SEC alleged.

Prosecutors and the SEC alleged that in exchange for the lucrative access, the day traders paid the brokers through trades that had no purpose except for generating commissions. Two of the brokers, Messrs. Casbarro and Mahaffy, also were paid secret cash payments, the SEC said, adding that the total gross commissions collected by the four brokers were $290,000.

"The defendants put their own interests ahead of their firms' and their firms' clients by stealing valuable, confidential information and selling it to unscrupulous day traders," said Rosylnn R. Mauskopf, U.S. attorney for the Eastern District of New York, in a statement.

Each broker was criminally charged with multiple counts of securities fraud. Each count carries a maximum sentence of 25 years' imprisonment, five years supervised release and a fine of $250,000 or twice the gain or loss as a result of the offense.

Write to Aaron Lucchetti at aaron.lucchetti@wsj.com

-- posted by SteveT

Top 190. Aug 15, 2005 3:01 PM

» Kirk - Re: 'Squawk Box' Case

.
In response to Four Brokers Indicted posted by SteveT:

"Four Brokers Indicted In 'Squawk Box' Case"

I've wondered who ratted them out? This seemed like the perfect crime as there is no paper or digital trail. It will come down to knowing which traders to investigate to compare their trading records with large orders at the major brokers. Toss in some statistics to show the trading record can't be random and they are done. The key is knowing who to investigate. I wonder how they got caught?

-- posted by Kirk

Top 191. Aug 28, 2005 12:51 PM

» SteveT - Chuck Prince's Citi Planning

http://www.businessweek.com/magazine/con...

Chuck Prince's Citi Planning
The CEO has a strategy for the financial giant. Those who don't like it can quit

After three years of grappling with angry regulators, sagging morale, stumbling financial results, and a stock stuck in neutral, Citigroup chief executive Charles O. Prince is ready to roll. He's revving up the world's largest financial company with a new growth plan.

The recent spate of high-level departures is a sign of the changing times. Prince is populating the bank's upper echelons with what he calls the "next generation of leaders," people ready to implement his vision for Citi. Now out of the long shadow cast by his predecessor, Sanford I. Weill, Prince is clearly moving away from a strategy that relied heavily on huge acquisitions for growth.

In an interview with BusinessWeek, Prince says he has renounced big deals until at least the end of next year or early 2007 -- a full year after the Federal Reserve's ban on Citi making any major acquisitions was expected to end. "I think that people have concerns that we are going to be forced to do a big deal and have all kinds of acquisition risk," he says. "If we can go as little as five or six quarters consecutively without headline issues, with good solid organic growth without having to do a big complicated deal, [then] we will see an important change in the sentiment about the stock." Citi shares are down 10.6% so far this year.

Prince's new growth strategy has four prongs: Invest heavily in the consumer businesses, capitalize on fast-growing international markets, build up the corporate investment bank, and restore Citi's battered reputation. "Everything we do should fit under one of those headings," he said.

The key to making Prince's plan work is restructuring consumer banking, Citi's most valuable real estate. Last year, it generated $47 billion in revenues and $12 billion in earnings, or about 55% of the bank's profits and more than either Wal-Mart Inc. or Microsoft. Yet its credit cards are losing market share, and consumer finance is lagging behind peers. Citi has about a third as many branches as Bank of America Corp., which is running a much smoother retail business.

As Prince sees it, Citi needs to reorganize the company from selling just products, and focus more on service, as do BofA and fast-growing upstarts such as Commerce Bancorp Inc. (CBH ) of Cherry Hill, N.J. He says he'll spend big to develop Citi's brands by upping advertising budgets and by launching a richer rewards program so that the more Citi products customers use, the greater discounts or perks they get. And he'll also build branches from scratch, though acquisitions of small banks are also likely. Citi has only a 3.6% share of U.S. deposits, while BofA's 10% is at a Fed-imposed ceiling.

FOREIGN APPROACH
His plan to overhaul consumer banking put Prince on a collision course with Marjorie Magner, a 20-year vet of the bank, who announced on Aug. 23 that she would resign as head of the global consumer group and leave. Prince is splitting her bailiwick in two. He promoted longtimers Ajay Banga, 45, and Steven Freiberg, 48, as co-heads of the consumer group. Banga, president of retail banking, will oversee North America. Freiberg, CEO of Citi Cards, will run the group's international operations. Mag-ner didn't respond to several requests for comment.

In Prince's view, foreign markets with plenty of growth potential need a different approach than mature U.S. and Canada markets. His top priorities are to invest more in retail banking in emerging markets like Poland, Turkey, and India, at least double Citi's credit-card volume worldwide, mostly in Southeast Asia and Latin America, and sell more investment products in Europe.

Prince is also busy streamlining the sprawling Citi empire. In recent months he has cut six operating units to four and sold off Citi's asset management and Travelers insurance units. To expedite strategic decisions he has created a 30-person operating committee, half the size of the management committee he inherited from Weill. And he's overhauling Citi's investment bank. Prince has made three acquisitions for undisclosed sums to beef up electronic trading for institutional clients, built a new distressed-debt group, and given equity and derivatives trading new technology and manpower.

Meantime, the clean-up of Citi's past transgressions continues. In June, the bank agreed to pay a total of more than $2.2 billion to settle allegations that it had overcharged mutual fund investors discounted fees, as well as a class action over its lending to Enron. Prince's campaign to improve the bank's "values, priorities, and internal controls" in order to wipe out any holdover rogue instincts from the old Citi culture is in full swing.

Some like what they see so far. "[Prince] is not making foolish acquisitions, and he seems to be very genuine about meeting the commitments he has to the Street," says James K. Schmidt, co-manager of the $2.3 billion John Hancock (FRBFX ) Regional Bank Fund, which owns 1.3 million Citi shares.

Still, the recent hemorrhaging of top executives has made some on Wall Street nervous. In mid-July, Citi's No. 2, Robert Willumstad, resigned after 20 years at the bank. Even Weill got into an embarrassing imbroglio with Citi's board over an apparent effort to quit as chairman before next April's annual meeting as planned. He was mulling leaving earlier to launch a $5 billion private-equity fund. "Many of the original visionaries of Citi as we know it today are leaving," says research analyst David Hendler of CreditSights. "There was never any indication that these people were unhappy."

ONE-STOP SHOPPING
Prince insists that the management changes are not part of an orchestrated plot to oust the Weill regime. "There is kind of a natural evolutionary process where at some point if people have been here a long time, they go off and do something else," he says. "That's healthy for an organization."

Despite Prince's ambitious plans for the bank, he still believes in the concept of a one-stop-shopping bank that Weill pioneered. While the debate over the viability of that model rages on, Eugene Ludwig, a former comptroller of the currency, says there's more of a case for it than against. "It's hard to argue with the power and diversity of the Citi or JPMorgan Chase (JPM ) or BofA balance sheet," he says. "You can make a lot of mistakes when you have that kind of powerful capital base be- hind you."

Since he became CEO, Prince has had Citi's huge clout at his disposal. But he has been too preoccupied with crisis management to use it. As those problems begin to ebb, the market is eager to see how well he can deploy Citi's power now that he's his own man.

By Mara Der Hovanesian in New York

-- posted by SteveT

Top 192. Oct 15, 2005 3:04 AM

» SteveT - Gulf-Coast Banks Could See Flood of Federal Aid

By JIM MCTAGUE

INVESTORS HAVE BAILED OUT of the stocks of banks and finance companies whose territories were devastated by hurricanes Katrina and Rita because no one knows how many borrowers will repay their loans. But those worries might be overblown because Congress appears likely to come up with a short-term, multibillion-dollar aid plan for the banks and their customers.

Hundreds of thousands of businesses, homes, cars and other collateral in coastal Louisiana, Alabama and Mississippi were obliterated by the wind and water. In December, a grace period extended to the storm victims expires. Analysts, who see the banks benefiting long term from recovery activities, nevertheless are cautious in the short term, fearing substantial write-offs of bad debt. "Credit quality is the biggest question mark," says Bain Slack, an equity analyst at Keefe, Bruyette & Woods and a long-term bull on the banks.

Mike Fratantoni, senior director of research at the Mortgage Bankers Association of America in Washington, D.C., says there are 530,000 mortgage loans in the affected areas, with principal amounts totaling $70 billion. We couldn't find an estimate for total loans.

The Independent Community Bankers Association of America, whose members include 120 banks that were in Katrina's path, has offered Congress 51 suggested relief actions for banks, small businesses and homeowners totaling over $100 billion. That's about 40% of the projected cost for reconstruction of the damaged areas.

Among the ICBA's suggestions:

PROVIDE RETROACTIVE FEDERAL FLOOD INSURANCE for homes flooded by breached levees. Residents in these areas could not obtain the coverage because their neighborhoods, though below sea-level, were not deemed to be in a flood plain. In effect, Washington would pay off any mortgage balance on wrecked homes.

AUTHORIZE FINANCIAL INSTITUTIONS to offer $10 billion in 4%-interest loans to businesses and individuals, with 85% of the amount guaranteed by the feds.

HAVE UNCLE SAM BUY bad loans from affected lenders.

GRANT A FIVE-YEAR NET OPERATING LOSS carryback for financial institutions in the storm area, thus temporarily eliminating their federal taxes.

No one expects Congress to grant all of the wishes; but enough of them could be adopted to significantly cushion the industry's hit. There are at least 10 storm-related bills in Congress now, several of which contain one or more ICBA suggestions.

A relief package would help banks big and small (see table above). For example, Washington Mutual (ticker: WM), a national institution, has 3,700 loans in the area worth $350 million -- just 0.1% of its assets. At the other end of the spectrum, New Orleans-based Whitney Holding (WTNY), on which Slack has a Buy rating, has 50% of its loans in Louisiana.

Louisiana's gross state product was about $155 billion last year. If storm aid actually were to approach $100 billion or more, lots of sunken businesses would be floating higher than ever.

E-mail comments to editors@barrons.com
URL for this article:
http://online.barrons.com/article/SB1128...

Good Bets?

Here are five potential beneficiaries of a federal aid package. Since Aug. 26, the trading day before Hurricane Katrina struck, through Oct. 6, shares of BancTrust Financial slid 9%; Hibernia, 13%; Parish National, 21%; Whitney Holding, 20%, and Trustmark, 3%.
Recent
Bank Ticker Price
BancTrust Fin. BTFG $18.51
Hibernia* HIB 29.39
Parish Nat. PNLC 49.50
Whitney Hldng. WTNY 26.12
Trustmark TRMK 26.02

*Due to be acquired by Capital One by year end.

Source: Bloomberg, SNL Securities

-- posted by SteveT

Top 193. Dec 17, 2005 4:54 AM

» SteveT - A Fresh Start at AIG

By JONATHAN R. LAING

IT HAS BEEN a tumultuous year for insurance giant American International Group and its shareholders. But better times are coming for both of them.

For one thing, AIG's franchise, at home and abroad, seems as sound as ever. For another, its new leaders have been cooperating with ongoing investigations into abuses in the insurance industry, something that could convince regulators to be reasonable in reaching a settlement with the company for its own transgressions.

AIG's annus horribilis began in February, when it was subpoenaed by New York Attorney General Eliot Spitzer and the SEC, regarding its accounting for what turned out to be a sham 2000 reinsurance deal with Warren Buffett's General Re. Within months, AIG had admitted to a host of other accounting shenanigans that had artificially inflated its income and shareholders' equity by billions of dollars from 2000 through 2004.

By March, AIG's 80-year-old CEO, Maurice "Hank" Greenberg, had been ousted, along with his CFO, Howard Smith, and several other senior executives because of their apparent roles in the accounting problems. The split between AIG and Greenberg, an industry icon after nearly four decades at the insurer's helm, was nasty; the press had a field day covering the mudslinging. But the company has distanced itself from its former chief, whose woes seem to be mounting. Last week, Spitzer released a report contending that, 35 years ago, Greenberg had violated the will of AIG's founder, Cornelius Vander Starr, defrauded a foundation Vander Starr started and eventually wrested control of AIG via gains generated by the alleged fraud.

In April, AIG's stock (ticker: AIG) fell some 30% below the 73.46 it had fetched in February. Since then, fear that AIG might be the next Enron or WorldCom has abated. The stock has recovered nicely, recently changing hands around 66. In fact, it still looks inexpensive and could very well be materially higher within 12 months.

John Hall, an insurance analyst for Wachovia Securities, argues that AIG could easily hit about 78 next year -- two times the $39 book value he expects the company to boast by the end of 2006. "This multiple is hardly a heroic assumption with the S&P 500 currently selling at three times its book value," says Hall. He arrives at that book value by adding his estimated 2006 earnings of $5.70 a share to his estimate of year-end 2005 book of $34.40, minus about 75 cents a share to reflect expected dividend payments and a conservative estimate of how much AIG will pay to settle the accounting scandal.

Even UBS analyst Andrew Kligerman, a onetime AIG bull who now has a Neutral rating on the stock and grumbles that the scandal left him feeling like he had been "kicked in the teeth," concedes that many portfolio managers think the big insurer deserves a multiple higher than the S&P 500's, because of its likely ability to deliver 15%-plus returns on equity and 10%-to-12% compounded annual earnings growth. Even using his conservative 2006 earnings estimate of $5.19 a share and assigning AIG a current S&P P/E ratio of 18 would yield a stock price above 93 next year.

WHY IS AIG'S OUTLOOK STRONG? For one thing, the accounting restatements and adjustments made this year for 2000 through 2004, though stinging, weren't devastating. The first restatement's reduction in income for the five-year period -- $3.9 billion -- constituted only 10% of AIG's income for that period. The total hit to 2004 net worth or book value was $2.26 billion -- less than 5% of the $82.77 billion in shareholder's equity reported before the restatement. A second -- and, maintains AIG's new CEO, Martin Sullivan, last -- restatement last month had no meaningful impact on year-end 2004 shareholders' equity. It cut net by just $133 million for 2004 and by $84 million for this year's first nine months.

Likewise AIG's earnings appear to be back on its customary steep growth trajectory. In the nine months ended Sept. 30, the company reported a 21% jump in net income before capital gains or losses, to $10 billion, or $3.82 a share, versus $8.3 billion, or $3.14, a year earlier. The comparison was helped by the downward restatements and adjustments taken in 2004 that slashed full-year results by $1.32 billion, or 12%, to $9.73 billion. Also this year's nine-month results got a boost of $1.6 billion, compared with $617 million a year earlier, from derivative hedges that didn't qualify for hedge accounting.

The nine-month results for 2005 also had included the largest after-tax catastrophe losses ever suffered by AIG -- $1.6 billion from hurricanes and other storms. "In a year of record losses for our industry, our company's geographic and product diversity really were on display for all to see," Sullivan recently gushed to Barron's.

Much of the pessimism hanging over AIG revolves around the conviction that it will be slammed when it finally settles with Spitzer, the New York Insurance Department and the SEC. Estimates of AIG's eventual settlement costs, including class-action suits, run well above $1 billion. This number is partly based on the $850 million that insurance brokerage Marsh McLennan (MMC) paid out this year to settle charges that it had engaged in bid-rigging to collect kickbacks through "contingent commissions" from major insurers like AIG in return for sending them business from Marsh clients.

AIG under Greenberg frequently incurred regulators' wrath for its belligerence and grudging cooperation with outside inquiries. In 2003, the SEC excoriated AIG for allegedly withholding material information. The agency fined AIG $10 million for helping Brightpoint, an Indiana cellphone distributor, delay taking an $11.8 million loss via a sham insurance transaction that spread the deficit over future periods.

In the fall of 2004, the SEC and the Justice Department chastised AIG for allegedly making inadequate disclosure of a criminal investigation into the Brightpoint imbroglio and another case involving PNC Financial Services (PNC). AIG was accused of helping the Pittsburgh banking concern remove bad loans and venture-capital investments from its balance sheet. In the end, the insurer paid $126 million to settle both cases.

If, under Greenberg, AIG resembled the Kremlin, glastnost now reigns under Sullivan, the warm, black-slapping Brit who began working for the insurer in London as a 17-year-old telex clerk 34 years ago. Upon succeeding Greenberg in mid-March, he launched a full-bore investigation into the accounting and governance practices across AIG's 130-country empire, in addition to working closely with Spitzer's office on its original inquiry into AIG's reinsurance deals with Gen Re. Some 36 multi-discipline teams fanned out through the company, "turning over every stone in an effort to make AIG's operations completely transparent," as Sullivan puts its. The self-investigation found plenty. Over the next few months, results were posted on AIG's Website; ultimately, a 150-page special report detailing the accounting lapses went to regulators.

There was the off-shore reinsurance company Union Excess, secretly controlled by AIG, which used it to offload $1.2 billion in insurance claims from AIG's balance sheet, fraudulently pumping up reported earnings. A disastrous auto-warranty insurance program started by Greenberg's son, Evan, that generated $295 million in premiums and $777 million in claims was transmogrified from an underwriting loss into a capital loss (Wall Street pays scant attention to such losses, compared with underwriting deficits).

Gains in various AIG hedge funds and municipal-bond investments were transmuted into investment income via fancy option strategies that let the company harvest and alter capital gains while risklessly reinstating their investment positions in the funds. Why? Because Wall Street analysts value insurers' investment income more highly than capital gains.

But those were the bad old days. Now, AIG seems to be scoring points with regulators by being more open. And this may win it a more reasonable settlement. A person close to Spitzer acknowledges that nearly all the claims made in the office's May civil complaint against the company, Greenberg and Howard Smith came from data uncovered by AIG itself, save for the original Gen Re allegations. (In that case,Gen Re apparently ratted on AIG in order to reduce the heat it was taking itself.) "One can't say enough about AIG's cooperation," the Spitzer associate says.

Regulators may also go easy on AIG because its financial games, while clearly hurting shareholders, didn't victimize policyholders and other customers. In contrast, Marsh McLennan's price-fixing injured its clients, who had relied on the broker to find them the best coverage at the best price.

True, the company might never again be the growth machine it was under Greenberg, when it seemed to be capable of consistently delivering earnings gains of 15% a year. In fact, Greenberg himself couldn't hit that target in his later years, which may have encouraged the accounting abuses.

Still, after the various restatements and adjustments, AIG earnings did grow at a not-too-shabby compound annual 12.2% clip from 2000 through 2004. And that indicates how much AIG has going for it, particularly under its new, seasoned and well-regarded management team. It has pledged to tighten AIG's operating controls and to inject new discipline into the company's acquisition policies and capital deployment strategies. The forensic accounting exertions earlier this year uncovered AIG operations with substandard returns on investment.

And AIG has a myriad of growth engines. Its foreign life and retirement services unit, which chips in about 30% of operating earnings, should continue its lusty growth, particularly as the immense Asian market, in which the company is the top foreign player, expands. Growing affluence abroad figures to make AIG's higher-margin annuity products increasingly popular.

AIG's U.S. life and retirement services business likewise figures to enjoy a growth spurt, as aging baby boomers begin to live off of, rather than accumulate, wealth. With relatively few of them having traditional pensions, annuities will likely be a fast-growing part of their retirement plan because of the security of guaranteed payments for life these products afford.

Meanwhile, disasters like the recent spate of hurricanes, which damaged billions of dollars worth of homes, commercial structures and energy facilities, ironically help property and casualty insurers in the long run, by allowing them to boost premium rates more easily. This is precisely what is happening in the U.S. property and onshore and offshore energy sectors. The recent catastrophes have also helped insurers impose more stringent terms and conditions on commercial policies.

As always, AIG is less vulnerable to any rate-cutting within the insurance industry because it derives much of its operating income from less competitive markets overseas and in specialized exotic niches in the U.S., such as kidnap insurance.

The future also seems bright for AIG's airliner-leasing unit, ILFC, and its capital-markets operation, despite the higher financing costs both face because of AIG's credit downgrade to double-A. The worldwide aircraft market is starting a dramatic upcycle. And the booming growth in global derivatives and commodities trading will benefit the capital-markets group.

So, more than likely, the American International Group's soap opera of the past 11 months will have a happy ending for shareholders, if not for Greenberg.

E-mail comments to editors@barrons.com
URL for this article:
http://online.barrons.com/article/SB1134...

-- posted by SteveT

Top 194. Dec 31, 2005 4:46 AM

» SteveT - Banking on Chinatown

By RICHARD PHALON

THOUGH BARELY A BLIP on Manhattan's financial screen, the city's Great Eastern Bank has suddenly become the object of knock-down fight for ownership. Two California banks, each focused on Chinese communities in the U.S., are pushing hard to win Great Eastern, an active player in Manhattan's Chinatown.

The battle is typical of the opportunism driving the rampant growth of a cluster of seven California-based community banks geared to Chinese and Korean customers. Between 2001 and 2004, five of them boosted their per-share earnings by at least 70%. The trend continued in 2005, with record gains of 17% to 75% through just the third quarter. Even Los Angeles-based Hanmi Financial, often a tail-end Charlie, has notched a 38% increase, easily topping the growth of Synovus Financial, America's biggest holder of community banks.

The numbers are so striking that Wall Street is asking the obvious question: How long can these banks keep it up? Many of them, after all, have big concentrations in real-estate loans, leaving them vulnerable to any bursting of bubbles. As a result, the banks' stock prices generally are down from their highs of a few months ago.

That could spell opportunity for investors because the long-term future is still bright for U.S. banks with strong ties to Asian communities. Asian immigration has spilled over from the coasts into a dozen new enclaves, the result of population growth much faster than the whole U.S. The high savings rate and flaming entrepreneurial spirit of this cohort -- one out of every eight of the 1.1 million Koreans in America owns a business -- is catnip for bankers familiar with the cultural terrain.

The Great Eastern Bank imbroglio is a kind of microcosm. It sums up the demographic shifts and acquisition strategies that have put this group of banks squarely on the small-cap map. Cathay General Bancorp, based in Los Angeles, and UCBH Holdings, of San Francisco, are both hankering for privately held Great Eastern's customers, not only in Chinatown but in an Asian enclave in the Queens borough of New York.

More than $6 billion in deposits are up for grabs in these two neighborhoods. The streets are filled with small businesses -- travel agencies, jewelry shops, produce markets, bars and restaurants -- all advertising their wares in Chinese and Korean characters. Together, they amount to a huge cash machine.

Not long ago, it looked as if UCBH, with assets of $7.3 billion, had a firm deal for the $300 million-asset Great Eastern, offering $112 million. But then Cathay General, with $6.1 billion in assets, popped out of ambush with an option to buy 41% of Great Eastern's outstanding shares. Each of the contestants needs a two-thirds vote to carry the day, and management remains on the UCBH side.

In addition to acquisitions, the seven Asian-oriented banks are trying to break into new markets by opening branches. Los Angeles-based Center Financial is probing emerging Korea towns in nine big cities -- Houston and Dallas, among them. Others are following similar paths, suggesting competition could be fierce.

The sector amounts to Seoul versus Beijing. Koreans flock to Center Financial, Hanmi Financial, Nara Bancorp and Wilshire Bancorp. Ethnic Chinese favor Cathay General, East-West Bancorp and UCBH Holdings.

So far, neither camp has been hurt much by rising interest rates and the consequent climb in deposit costs. To the contrary, rising rates have helped some of the banks, by boosting the returns on loans. Center Financial net interest margins have risen to 4.77% from 3.75% last year.

Still, much of the group's growth is tied inextricably to the California real-estate boom. East-West and Wilshire, for instance, draw more than 80% of their loan volume from mortgage and construction loans. For the rest of the seven, the share ratio is over 60%.

With real-estate jitters sweeping the country, Wall Street's concern has been evident: The banks' price-earnings ratios have fallen significantly. Still, at 16 to 20 times earnings of the past year, the multiples aren't much higher than those of slower-growing banks of similar sizes. The average P/E for U.S. banks with $5 billion to $10 billion in assets is 17.3, says SNL Financial of Charlottesville, Va.

NED JOHNSON'S PORTFOLIO managers at Fidelity Investments clearly see value in the group. His Boston-based funds are the banks' single biggest institutional holder. They own big stakes in all seven, including chunks of more than 9% in Center, Nara, Cathay General and UCBH.

Fidelity's renowned street smarts are no guarantee that the banks will grow at the same velocity forever. Cautious investors may want to hold off for a while on the banks most heavily bound to real estate: East West, Wilshire, Cathay General and UCBH.

Among those less top-heavy in real estate, Center Financial has put on a strong push to expand earnings by opening branches. And it has aggressively promoted a new class of variable-rate certificates of deposit; those should prove less burdensome to profit margins when customers roll over CDs in the second half of '06. That's why James Abbott, an analyst at Arlington, Va.-based Friedman, Billings and Ramsey, sees the stock headed to $31, up more than 20% from recent levels.

For the longer term, Abbot and Joseph Gladue of Philadelphia-based Cohen Brothers are both intrigued by Hanmi Financial. The bank grew nicely from its 2004 purchase of Pacific Union Bank. Judging from recent earnings, Hanmi already is getting economies of scale.

Absent some cataclysm, immigration isn't likely to stall. And the seven banks can always draw on the power of inspiration. It wasn't long ago that an immigrant named Giancarlo Giannini molded the Bank of Italy into something bigger. Today, it's called Bank of America.

The Bottom Line: So far, rising interest rates aren't hurting the group, and the earnings outlook for this year is strong. Some of the stocks climb by more than 20%

RICHARD PHALON is a financial writer based in New York.

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URL for this article:
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-- posted by SteveT