By Kate Conger
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By Rachel Swan
By Anna Pulley
By Erin Sherbert
By Chris Roberts
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Newsom says the event demoralized his bank examiner colleagues, who heard the message as Don't do your job properly.
And so Wu, unfettered by the threat of regulatory crackdown, spent the 2000s polishing a reputation as one of America's most dynamic immigrant entrepreneurs. He joined the board of directors of San Francisco State University's College of Business, a post an SFSU representative says he still held as of mid-December. Wu became a benefactor to the symphony, and helped fund Mayor Gavin Newsom's 2005 junket to China, according to the trip's organizer. He became a regular in the society pages of the Nob Hill Gazette. In 2008, Forbes Asia Magazine named him among Twenty-Five Notable Chinese-Americans. And in 2009, he became president of the National Association of Chinese American Bankers-USA.
Even when the bank began showing small losses on its financial statements in the middle of 2008, supposed financial dynamo Wu was considered a good bet. In November 2008, UCBH received $299 million from the U.S. Treasury's TARP-funded Capital Purchase Program, meant specifically to fortify "healthy," well-run banks. But even without accounting for fraud allegations, it was possible to see that UCBH's growth was based on a risky strategy of overleverage.
Julianna Balicka, an analyst with the investment bank Keefe, Bruyette & Woods, says there were signs that United Commercial Bank wasn't in the greatest of health. The company had sought growth by lending to U.S. construction companies, a business in which it had little experience.
"One thing that was an indicator that all was not well there was that they had construction lending growing so rapidly," she says. "But they were not the Chinese-Americans they grew up with. They were developers looking for the cheapest and best loans they could get. As a newcomer to that market, you're going to get a lot of lemons."
Lemons create losses. In 2008, in the wake of the mortgage crisis, U.S. banks competed in a beauty contest where they had to impress regulators as being among America's best-run banks. The prize: hundreds of millions of dollars in TARP money.
UCB, the government now alleges, went heavy on the pancake makeup. According to the July 2010 FDIC Inspector General's report, during 2009, UCBH's external auditor, KPMG, "became suspicious that UCB officials and/or employees had engaged in illegal acts to conceal the bank's true condition."
For those paying attention, this was déjà vu. "When a jury in San Francisco Superior Court found by clear and convincing evidence that United Commercial Bank defrauded another bank to avoid a $2 million commercial loan loss, the FDIC did nothing," says Friedemann, the attorney who represented Far East National Bank in 2002. "Why?"
Six years later, United Commercial Bank was eagerly anticipating a $300 million U.S. Treasury cash infusion. And the "investigation found instances where bank employees modified loan terms in an effort to delay the negative consequences of a weakened borrower," according to an FDIC report.
The FDIC closed the bank in November, with losses to the federal bank insurance fund estimated at $1.3 billion. The bank's holding company became worthless, and thus so did the U.S. Treasury's "healthy bank" investment. East West Bank of Pasadena took over deposits, loans, and branches in a deal with the FDIC.
Investigators are now digging through the remains of United Commercial Bank, attempting to get to the bottom of the apparent fraud. For answers, they might cast their eyes back to 52 boxes of SF Superior Court depositions in a Santa Rosa warehouse, left over from 2002. "If they had essentially removed Tommy Wu back then," Newsom says, "they could have saved us nearly $2 billion."
You don't say?