East West Bancorp Inc.EWBC

Morningstar Rating

Stock Research and Analysis

by Michael Kon, CFA

East West Bancorp's strategy to serve Asian-Americans in California will produce pleasing returns to owners. In the near term, higher credit costs are inevitable but the acquisition of United Commercial Bank should produce a substantial upside for shareholders, Read more

Bulls Say

The acquisition of United Commercial Bank creates a California powerhouse and a prime ethnic deposit gatherer, which should help attract competitors' clients.

The ethnic Chinese demographic is attractive from a bank's perspective: Saving rates are high, charge-offs are low, and relationships are long-lasting.

The company's exposure to Chinese-run businesses will help it to take advantage of trade between the United States and China.

East West has completed seven acquisitions since 1999, targeting other institutions that cater to Asian-Americans. These purchases have helped solidify the bank's position in the California market. Read more

Bears Say

The loan/deposit ratio is around 100%, which means the bank has to tap more expensive nondeposit funding sources to support loan growth.

A below-average portion of East West's net revenue comes from fee income. The bank is, therefore, highly dependent on loan growth and interest rate management for net revenue growth.

Although several local real estate markets in California show signs of life, the chances for high organic growth in assets are slim.

The bank's expansion outside its core market--Chinese Americans--might weigh on future profitability because of the high level of competition in mainstream markets. Read more

Strategy

East West is positioning itself as the bank of choice for Asian-Americans. In addition to wooing retail customers with bilingual services, it is working on developing its commercial banking franchise. Read more

Management

We applaud management for its swift reaction to the credit crisis, which positioned the bank on a healthier footing than its peers. These actions distinguished East West from its competitors during a severe financial crisis, but more importantly, allowed Read more

Profile

East West Bancorp is a California regional bank that focuses on serving Asian-American businesses and consumers. With about $20 billion in assets, East West provides retail Read more

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