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In April 2007, The Economist identified San Francisco high-society denizen Tommy Wu as a new type of business hero. The enterprising CEO of a scrappy Chinatown bank had just bested industry giants such as Citigroup to become the first U.S. financial executive to purchase a mainland China bank.
"Sometimes," the article noted in the magazine's characteristic English slang, "a tiddler stands out from the rest."
You don't say?
"Tiddler" is British for a minnow-size fish. But Wu had a whale of a reputation as United Commercial Bank's $2.4 million-per-year chief executive portrayed in glowing profiles in Forbes, American Banker, The San Francisco Chronicle, and other media. His was a classic Ellis Island rags-to-riches story, where an outsider comes to America with innovative ideas that change U.S. business.
Wu had once aspired to be an interior designer, but instead took a job as a trainee in a Hong Kong bank. He immigrated to the U.S. in 1991 to work as head of retail banking for United Commercial Bank, a subsidiary of First Pacific Bank of Hong Kong. In 1998, he orchestrated a management-led buyout and transformed this small Chinatown mortgage lender into a rapidly expanding commercial loan juggernaut, expanding assets from $800 million to as high as $13.5 billion.
By straddling the new U.S.–Asian economy, the slight, jug-eared badminton enthusiast could boast to folks back home in Hong Kong that he'd made it really, really big. From 29 California branches in 2001, his bank expanded to 70 nationwide in 2007. Wu opened a branch in Hong Kong, where he was frequently seen at the $500-per-night Conrad Hotel. Shares in his bank's holding company, UCBH, went from $7 in 2001 to $18 in 2007.
"Luckily, I am a high-energy person who only needs to sleep four to five hours daily," he told an Asian Week interviewer in 2005. "If the average person works eight hours, I will work 12 to 14 hours. Within 10 years, I should be five years ahead of that person. In 20 years, I should be 10 years ahead."
U.S. taxpayers, it turns out, would have been better off if regulators had years ago arranged for Wu to take long midday naps. Last fall, Tommy Wu's bank collapsed, taking with it $1.3 billion in FDIC insurance funds, while devouring the $300 million UCB got from the Troubled Asset Relief Program (TARP), meant to fortify supposedly healthy banks.
That's almost $2 billion of our money, the same amount — to put this local scandal in context — as the shortfall now facing California's entire K-12 school system.
This summer, the government issued a 50-page report claiming U.S. regulators were impeded from recognizing problems as Wu burned through that money because his bank tricked regulators. Federal examiners were fooled into thinking UCB's loan portfolio was healthy and deserving of TARP money, the report said, because top bank officials illegally falsified documents to make a rotten loan portfolio look sound.
According to the July 2010 FDIC Inspector General's report, "San Francisco Regional Office officials told us that misrepresentations and financial reporting matters that were identified in the investigation masked the bank's true financial condition and frustrated examination efforts in late 2008 and into 2009."
Had they been paying attention, U.S. regulators might not have been so easily tricked. The FDIC had access to evidence as early as eight years ago that UCB was practicing the same sort of multimillion-dollar, altered-loan-records fraud the bank is now accused of committing against the U.S. Treasury.
Wu's starring role in the aforementioned Horatio Alger myth persisted only because regulators passed up opportunities in 2002 to consider kicking him out of the financial industry, and thus possibly halting an acquisitive spree that ultimately ravaged the FDIC insurance fund.
Wu might have been a minnow. But when regulators overlooked 2002 evidence alleging that Wu had overseen millions of dollars' worth of fraud, they allowed him to grow into a taxpayer-money-gobbling shark.
From the vantage point of the post-2008 banking-collapse recession, it isn't surprising that Wu's hard-driving banker story ended badly.
The final draft of Wu's banking career — of rags to questionable riches to contributing to global financial chaos to collapse — is now typical, thanks to 291 U.S. bank failures in the past two years. Last November, United Commercial's collapse was failure No. 120 for just the year 2009.
But The Economist was right to note that this tiddler stands out. Wu's saga is exceptional not just because it was unusually disastrous for taxpayers. It's unique in how rife it was with tawdry dealings by bank insiders: The bank's growth wasn't fueled so much by U.S.-China synergy as by run-of-the-mill dicey commercial credit, which UCB bankers then hid. Investigators with the Securities and Exchange Commission and other regulatory agencies are now reportedly poring over the remains of United Commercial Bank to unravel tangles of suspicious, possibly insider-linked transactions, fraud, and management-led cover-ups.
And the inside story of Wu's rise and fall is downright extraordinary in light of the farcical incompetence of banking regulators, who ignored public indications that he had allegedly been overseeing significant bank-on-bank fraud years before UCB's 2009 collapse.
"The only explanation is the FDIC management must have been smoking dope and inhaling," says Richard Newsom, a retired FDIC and California state banking examiner who reviewed court documents, FDIC reports, financial filings by UCBH (the bank's holding company), and other documents forwarded by SF Weekly. "They knew he was a scumbag eight years ago. But they did nothing."