A Bank Zombie Lurks in Little Saigon

Posted on September 20, 2012


Little Saigon, a few square miles in the Westminster area of Orange County, Calif., purports to be the biggest enclave of Vietnamese Americans in the country.

With close to 50,000 people of that heritage packed into such a small area, Little Saigon is also a big source of Vietnamese things: movies, food, culture, media and shopping. It has its own economy and got two homegrown banks in the mid-2000s, when the population of Little Saigon grew by 30%.

One of those start-ups, Saigon National Bank, was the first national bank chartered and owned by Vietnamese-Americans.

Since then, we have all heard about the purported success of the bank bailouts during the financial crisis. For all of their struggles, companies such as Bank of America Corp. and Citigroup Inc. are paying or have paid back U.S. taxpayers with interest.

Still, more than half of the 707 institutions that got infusions as part of the $700 billion Troubled Asset Relief Program have yet to pay it back. A total of 136 financial institutions have the added distinction of skipping the most recent dividend payment, according to the Treasury Department.

They are the banking industry’s version of the deadbeat club. These banking zombies took a combined $3 billion from TARP.

All but three of them are repeat offenders, according to SNL Financial. Some like Blue Valley Bancorp, Kansas City, Kan., don’t look as if they will ever repay the government. Blue Valley has missed more than three years of payments.

Baraboo Bancorp, Baraboo, Wis., started making payments, kept up a good record but missed its August payment. Some banks have paid sporadically, while some have missed payments and caught up later.

Tyler Hall, a bank analyst at SNL, said some state banking regulators won’t let troubled banks pay dividends, even if it is to the Treasury Department.

That brings me back to Saigon National, one of the smallest TARP recipients of all. It has missed 15 dividend payments.

Saigon National’s founders said they wanted the bank to be “a bread-and-butter community bank.” Its board included a variety of local merchants with a Vietnamese heritage, including owners of the local furniture store and supermarket.

The bank raised more than $14 million in its 2006 initial public offering. Its market value rose to $16 million by year end.

The bank suffered a loss of $166,381 in 2006 and $557,000 in 2007. But loan growth that year was $9.2 million, and deposits rose $17.7 million. Operating losses fell to $799,000 from more than $1 million. Saigon National expected to turn a profit in 2008.

Then things got worse. A lot worse. The bank had steeper losses in the first six months of 2008 than for all of 2007. By October 2008, Saigon National was in deep trouble. It received a $1.2 million TARP injection but still reported a $1.8 million loss for the year.

Saigon National has never reported a profit, piling up a total of more than $10 million in losses from 2008 to 2011. In the first six months of 2012, the bank had a loss of $233,000.

Roy Painter, Saigon National’s chief financial officer, didn’t return calls seeking comment.

You can see the problem. The bank serves a minority community that founded and funded it. Saigon National took a tiny TARP payment. Its loan book is shrinking. For all of its losses, it still stumbles on with a deposit base at 77% of total assets. Saigon National has a Tier 1 capital ratio of 21.1%, twice that of Bank of America.

For all its qualities, though, Saigon National is a zombie bank. The Treasury Department plans to sell the preferred stock of deadbeat banks such as Saigon National as part of its plans to close TARP. Taxpayers probably won’t get much for the preferred shares.

As a former Treasury official told me, for banks such as Saigon National, there is no way they will ever have enough capital to get out of TARP, but they will have just enough to keep the Federal Deposit Insurance Corp. from failing them.

Today’s TARP handlers, this former official says, will dump whatever they can and move on.

Whether Saigon National survives will be up to its regulator. In this case, tha i’s the Office of the Comptroller of the Currency. By traditional measures, Saigon is well-capitalized. But it is a zero-sum game. If a bank continues to lose money, it goes out of business.

That would be a shame, of course, but Saigon National isn’t alone. Community banks are disappearing. More than 330 have failed since TARP was signed into law. An additional 400 have yet to pay the government back.

Little Saigon may have the flavor of a faraway place, but its banking is right here at home.