China Bank Deal Might Have Saved $1.7B

NEW YORK (TheStreet) -- U.S. regulators reportedly spurned an investment offer from a Chinese bank that could have saved taxpayers a total of $1.7 billion.

Minsheng Bank, the first privately owned bank in China, reportedly wanted to take a 50% stake in UCBH Holdings (UCBH Quote), according to a Bloomberg News report on Oct. 6. Eight days later, Reuters reported U.S. regulators had quashed the proposed deal.

Both reports cited anonymous sources, though the Reuters source was quoted saying: "The United States regulatory authorities have restrictions; it is impossible for us to buy a controlling stake in a U.S. bank." The use of the first person plural, "us" suggests the source was at Minsheng. The Shanghai-listed bank, which is in the midst of a $4 billion Hong Kong IPO, could not be reached for comment.

On Nov. 6, UCBH was closed by regulators, at a cost to the FDIC Deposit Insurance Fund of $1.4 billion. The U.S. Treasury also likely lost the $298 million it invested in UCBH under the Troubled Asset Relief Program (TARP).

East West Bancorp (EWBC Quote) then picked up UCBH's $7.5 billion in deposits and $10.2 billion of its assets in a deal that surprised some observers, including Sandler O'Neill analyst Aaron James Deer.

In a research note, Deer wrote that both East West and Cathay General Bancorp (CATY Quote) made sense as acquirers since like UCBH they have a large Chinese American clientele. But he added he was "not fully convinced the regulators would include these two institutions in the bidding process, given that both East West and Cathay had their own sizeable credit challenges, did not have significant excess capital, and could find their own resources stretched in trying to deal with the clean-up of an institution of comparable size to their own."