BBCN Bancorp, Inc. BBCN and Wilshire Bancorp Inc. WIBC, the two biggest lenders in the Korean-American banking space, have inked a $1-billion stock deal to merge and become the 7th largest publicly traded bank in California. Shares of Wilshire, the second-largest lender in Korean-American industry, jumped nearly 5% on the news. Shares of the bigger party BBCN, however, closed 1.6% lower at the end of Monday’s session.
The latest development will allow BBCN to foray into Texas, Georgia and Alabama; while Wilshire will gain access to Illinois, Washington and Virginia markets. Together, the merged entity will boast the largest deposit-market share among Korean-American banks in New York, New Jersey, California, Washington and Alabama; apart from holding the second-largest share in Illinois and Texas.
Moreover, the entity will become the first super regional Korean-American franchise to provide full banking services to sizeable Korean-American communities across major markets of the U.S. The “unrivaled organization” will hold $12.3 billion in assets, including gross loans and deposits worth $9.6 billion and $10 billion, respectively.
According to Kevin S. Kim, chairman, president and chief executive officer of BBCN, the new entity will have “the most comprehensive offering of commercial and consumer products and services in the Korean-American banking space, with exceptionally strong platforms for commercial real estate, commercial, SBA and residential mortgage lending”.
According to the merger agreement, each shareholder of Wilshire will receive 0.7034 share of BBCN, reflecting a value of $13.00 for each Wilshire share (based on closing prices as of Dec 4). Further, the transaction will likely qualify as tax-free for Wilshire shareholders.
Additionally, 9 directors from BBCN and 7 directors from Wilshire will constitute the initial board of the new entity. Moreover, Steven S. Koh, chairman at Wilshire, will also serve as chairman of the merged entity. Further, the newly formed organization will operate under a new name that will be finalized prior to the close of the merger.
The transaction is expected to close in mid-2016. However, it is subject to approval from shareholders of both parties, regulatory consent, and other customary closing conditions.
- Accretion to earnings per share in 2017; 14% for BBCN and 17% for Wilshire
- $42 million in cost savings, representing 16% of combined operating expenses
- Considerable revenue growth opportunities, particularly in SBA lending and trade finance
- Strong capital and liquidity position that will facilitate meaningful expansionary measures
Separately, the latest announcement implies rejection of a similar merger proposal received by BBCN from Hanmi Financial Corporation HAFC, the third-largest Korean-American bank after BBCN and Wilshire, in Nov 2015. Interestingly, the deal with Hanmi Financial was valued relatively higher at approximately $1.6 billion (read more: BBCN Bancorp Gets Merger Proposal from Hanmi Financial).
BBCN and Wilshire currently hold a Zacks Rank #2 (Buy) and a Zacks Rank #5 (Strong Sell), respectively. American River Bankshares AMRB is a better-ranked banking stock, sporting a Zacks Rank #1 (Strong Buy).
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