Despite growing scrutiny of regional banks, little-known East West Bank The company was able to pull ahead thanks to one key customer segment: Asian Americans.
Shares of East West Bancorp edged higher in 2024, rising 2%. That’s a minuscule gain compared with the S&P 500’s 10% gain, but it’s impressive considering the performance of regional banks. this SPDR S&P Regional Bank ETF (KRE) It fell 9% over the same period.
East West has gained 10% (excluding dividends) since March 2023, the day before the collapse of Silicon Valley Bank. East West’s current yield is 3%.
The stock is a unanimous Buy on Wall Street, according to LSEG, and analysts say the Southern California bank has recently report Record deposits – able to withstand economic slowdown thanks to its conservative capital management. What’s more, they say it’s The fastest growing population America’s growth heralds future growth.
“East West Bank is targeting Asian Americans, so you’re less likely to switch banks if someone speaks Mandarin, and another bank may not speak Mandarin,” said CFRA Research analyst Alexander Yokum. “So, That’s a big advantage for them from a stickiness perspective.”
“The banking industry is obviously very competitive. There are thousands of banks in the United States. If you can compete on something other than price, you have an advantage,” he added. In April, analysts reiterated a Strong Buy rating on the stock. His 12-month price target is $105, which implies an upside of more than 40% from Thursday’s closing price.
American dream = owning a home
Part of what has helped East-West succeed among Asian Americans can be traced back to its origins. East West Bank is established Founded in 1973 as a federal savings and loan institution in the Los Angeles area, serving Chinese American and immigrant communities who had difficulty obtaining mortgages and business loans.
The bank has since expanded significantly, with more than 100 branches in the United States and Asia, and Nearly $71 billion in assets As of March 31st.
But the residential mortgage business remains a key differentiator for East West Bank, which works with newcomers who may not necessarily have all the documentation needed to own a home with a more traditional bank. This includes proof such as a Social Security number, tax identification number, or documented income and employment history.
“Some of their customers are coming to the U.S. and may not have all the requirements for a qualifying mortgage, and they are using the East West to get mortgages for their homes,” Wells Fargo analyst Timur Braziler said. “But the company understands these borrowers, very Get to know this crowd.”
The analyst said that means banks can charge more upfront fees than conforming mortgages, which meet guidelines set by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency and can Charge higher interest rates. Wells Fargo’s target implies further gains of nearly 16% next year.
“When you can charge a higher interest rate for a mortgage, it becomes very attractive and you get better leverage, which means the customer is putting more money into the property,” Basil said. “And you’re doing it in an asset class where not many others are participating.”
In fact, Chief Financial Officer Christopher Del Moral-Niles said East West Bank wants its residential mortgage portfolio to be one-third of its total loans; it’s currently just shy of that number, at 29%.
“All communities seemed to aspire to realize the American dream of homeownership, and if Chinese Americans couldn’t achieve that dream, the founders, both East and West, would find a way to make it happen, and they did,” Del Moral said. . “Today we continue to do that in a way that other banks don’t. ”
Del Moral-Niles added: “I see this as an opportunity and we see this as a core component of our product and a core differentiator of our solution.”
This helped East-West retain its customer base, especially as it grew from the Cantonese-speaking population that originally came to the United States to a community that reflects the broader diaspora.
Steven Leung, who lives in New York City’s Chinatown, said his oldest business account is with East West Bancorp, where he said he has been banking for more than 20 years.
“We already know all the people here, so that’s really helpful. We need something and they can help us,” Liang said. “We know all the tellers here, all the bank managers, all the staff.”
cross-border trade
East West Bank also seeks to become the preferred commercial lender for Chinese-American entrepreneurs at home and abroad, an international positioning that is unusual for a regional U.S. bank.
The bank first opened an office in Beijing in 2003 and headquartered its China operations in Shanghai in 2009. East and West also drive cross-border activity between the United States and other Asian countries such as Thailand and Vietnam.
“Sometimes it’s often the big international banks that play this role, but for this sub-market – the Asian community, small businesses – we play a key role and have grown with many of those banks to become a significant player in the cross-border market,” Del Moral-Niles said. “That’s somewhat unique to regional banks.”
To be sure, strong ties with China are also a potential challenge for both East and West as geopolitical and trade tensions rise between Washington and Beijing. But Chief Financial Officer Del Moral-Niles is quick to remind people that East West is primarily a U.S. bank with only four branches in Asia.
Strong capital management
For investors, the most attractive aspect of the regional bank is its customer base’s conservative attitude toward savings and its leader’s approach to capital management.
“Asian Americans, overall, have above-average incomes but below-average loan defaults,” CFRA’s Yokum said. “So it’s a good group to pursue.”
Meanwhile, East West Bank’s common equity tier-1 (CET-1) ratio, which measures a bank’s capital relative to risk-weighted assets, is 13%. Yokum said a typical bank’s CET-1 ratio is between 10.5% and 11%.
“Partly because the founders of the bank were quite conservative, and partly because (CEO Dominic Wu) was quite conservative, the whole approach was first and foremost, ‘Let’s continue to be one of the strongest and best-capitalized banks in the industry.'” With this advantage, we can do what we need to do to drive business forward.
“When your customers start to realize that you are a strong bank, then you become an attractive alternative for them when things start to go wrong at other banks. When there is instability, you become a place where people turn,” Del Moral-Niles added. “That’s worked well for us over time, especially last year.”
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