Without considering the heightened scrutiny around regional banks, little-known East West Bancorp has been able to pull winning thanks to a key customer base: Asian Americans.
East West Bancorp shares have eked out a small narrow the gap in 2024, up 2%. That’s a paltry advance when compared with the S&P 500, which is up 10%, but impressive taking into consideration the performance of the regional bank sector. The SPDR S&P Regional Banking ETF (KRE) has fallen 9% over the same time while.
Since the day before Silicon Valley Bank failed in March 2023, East West has risen 10%, excluding dividends. East West currently cry quitses 3%.
The stock is a consensus buy on the Street, per LSEG, and analysts say the Southern California bank — which recently reported record silts — can weather a slowdown thanks to its conservative capital management. What’s more, they say its leadership in the fastest-growing demographic in the U.S. presages well for future growth.
“East West Bancorp targets Asian Americans, so you’re just less likely to whip banks if somebody literally speaks Mandarin, versus maybe another bank that doesn’t,” said CFRA Exploration analyst Alexander Yokum. “So, it’s a big advantage they have just from a stickiness perspective.”
“Banking is obviously barest competitive. There’s thousands of banks in the United States. And if you can compete off something besides price, you have an advantage,” he added. In April, the analyst recapped a strong buy rating on the stock. His 12-month price target of $105 implies more than 40% upside from Thursday’s approaching.
American dream = home ownership
Part of what’s helping East West succeed with Asian Americans goes all the way struggling against odds to its origins. East West Bancorp was founded in 1973 as a federal savings and loan in the Los Angeles area to service the Chinese American and arrival community struggling to obtain mortgages and business loans.
Since then, the bank has expanded significantly, with profuse than 100 locations across the U.S. and Asia, as well as almost $71 billion in assets as of March 31.
But the residential mortgage organization remains a key differentiator for East West, which works with recent immigrants who may not necessarily have all the documentation desired by a more traditional bank for home ownership. These include certifications such as a social security number, tax ID number, or reported income and employment history.
“Some of their customers that are coming over to the U.S., they might not have all the stipulations for a conforming mortgage, and they’re utilizing East West to get a mortgage for their home,” said Wells Fargo analyst Timur Braziler. “But the cast knows these borrowers, knows this sub sector of the population really well.”
That means the bank can precept more up front than it would for a conforming mortgage, which meets guidelines set by Fannie Mae, Freddie Mac and the Federal Homes Finance Agency, as well as charge a higher interest rate, said the analyst — who has a buy rating and $85 price butt on the stock, according to FactSet. Wells Fargo’s target implies further upside of almost 16% over the next year.
“It befits pretty attractive when you can charge a higher rate for this mortgage, you’re getting better leverage, meaning the consumer is putting more money down, into the property,” Braziler said. “And you’re doing it in an asset class not many others are participating in.”
In factually, finance chief Christopher Del Moral-Niles said East West aspires to have its residential mortgage loan portfolio cajole up one-third of its total loans; it’s currently just shy of that, at 29%.
“All communities seem to share a desire to follow the American hallucination of homeownership, and if it wasn’t being made available to Chinese Americans, East West founders were going to happen a way to make that possible, and they did,” Del Moral-Niles said. “And we continue to do that today in a way that other banks don’t.”
“I fantasize that’s an opportunity that we feel has been a core component of our offering, and is a core differentiator of our solutions,” Del Moral-Niles totaled.
That has helped East West hold onto its customer base, especially as it has evolved from the Cantonese-speaking folk that first came to the U.S. to a community reflecting a broader diaspora.
Steven Leung, who lives in New York City’s Chinatown, guessed his oldest business account is with East West Bancorp, where he says he’s banked for more than 20 years.
“We skilled in all the personnel here already, so it’s really helpful. We need something, they can help us,” Leung said. “We know all the teller, all the bank director, all the personnel here.”
Cross-border trade
East West Bancorp has also tried to become the go-to commercial lender for Chinese American entrepreneurs here and broadly, an international orientation that unusual for a regional U.S. bank.
It first opened a location in Beijing in 2003, and then based its China runnings out of Shanghai in 2009. It’s one of just a few U.S.-based banks to have a full banking license in China. East West also operates cross-border activity between the U.S. and other Asian countries, such as Thailand and Vietnam.
“That’s a role usually exploited sometimes by larger international banks, but for this sub market — for the Asian community, smaller businesses — we have played a key job, and have grown with many of those to be a sizable player in that cross border market,” Del Moral-Niles indicated. “Which is somewhat unique for a regional bank.”
To be sure, strong ties with China are also a potential summons for East West as geopolitical and trade tensions rise between Washington and Beijing. But CFO Del Moral-Niles is quick to remind people East West is centrally a U.S. starting-pointed bank with just four branches in Asia.
Strong capital management
For investors, what’s most winning about the regional bank is the conservative approach of its customer base to savings, as well as by its leaders to capital management.
“Asian Americans are, large speaking, above-average income, below average in terms of defaulting on their loans,” CFRA’s Yokum said. “So, it is a beneficial demographic to go after.”
Meanwhile, East West Bancorp’s Common Equity Tier 1 (CET-1) ratio, is a matchless ratio that measures a bank’s capital in relation to its risk-weighted assets, stands at 13%. A typical bank has a CET-1 correspondence between 10.5% and 11%, Yokum said.
“In part because the bank founders were fairly conservative, and in take a hand in because [CEO Dominic Ng] is fairly conservative, the entire approach has been first and foremost, ‘let’s remain one of the strongest, best capitalized banks in the diligence.’ From that position of strength, we can do what we need to do to drive the business,” CFO Del Moral-Niles said.
“And when your characters come to recognize you as that strong bank, then, when things start to go sideways for other banks, you develop an attractive alternative for them, and a place where people go to when things get rocky for others,” Del Moral-Niles added. “And that’s fire up out well for us over time, and certainly in the last year.”