united states district court northern district of …china minsheng banking corp., ltd. completed...
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28CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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LIONEL Z. GLANCY (#134180)MICHAEL GOLDBERG (#188669)GLANCY BINKOW & GOLDBERG LLP1801 Avenue of the Stars, Suite 311Los Angeles, California 90067Telephone: (310) 201-9150Facsimile: (310) 201-9160E-mail: [email protected]
[Additional Counsel on Signature Page]
Attorneys for Plaintiff Huy Tran
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
HUY TRAN, Individually and on Behalf of AllOthers Similarly Situated,
Plaintiff,
v.
UCBH HOLDINGS, INC., THOMAS WU, AND CRAIG ON,
Defendants.
)))))))))))))))
No.
CLASS ACTION
COMPLAINT FOR VIOLATIONSOF THE FEDERAL SECURITIESLAWS
DEMAND FOR JURY TRIAL
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28CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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Plaintiff Huy Tran, by and through his attorneys, alleges the following upon information and
belief, except as to those allegations concerning Plaintiff, which are alleged upon personal
knowledge. Plaintiff's information and belief is based upon, among other things, his counsel’s
investigation, which includes without limitation: (a) review and analysis of regulatory filings made
by UCBH Holdings, Inc. (“UCBH” or the “Company”) with the United States Securities and
Exchange Commission (“SEC”); (b) review and analysis of press releases and media reports issued
by and disseminated by UCBH; and (c) review of other publicly available information concerning
UCBH.
NATURE OF THE ACTION AND OVERVIEW
1. This is a federal class action on behalf of purchasers of UCBH’s securities between
April 24, 2008 and September 8, 2009, inclusive (the “Class Period”), seeking to pursue remedies
under the Securities Exchange Act of 1934 (the “Exchange Act”).
2. UCBH operates as the bank holding company for United Commercial Bank, which
provides personal and commercial banking services to small-and medium-sized businesses, business
executives, professionals, and other individuals, and primarily engages in generating deposits and
originating loans.
3. On September 8, 2009, UCBH shocked investors when the Company disclosed the
conclusions of an Investigation Subcommittee of the Board Audit Committee (“Subcommittee”)
regarding the recognition of impairment losses on nonperforming loans and other real estate owned
(OREO) assets. According to the Company, the Subcommittee’s report identified problems resulting
both from weaknesses in the Bank’s internal controls and from deliberate and improper actions and
omissions of certain Bank Officers, and the report concluded that those problems were driven by an
apparent desire to downplay deteriorating financial conditions by delaying or abating risk rating
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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downgrades and minimizing the Bank’s overall loan loss allowance. Moreover, UCBH disclosed
that the report raised serious concerns regarding the actions of a number of current and former
Officers at various levels of the Bank’s management.
4. On this news, shares of UCBH declined $0.17 per share, or 14.29%, to close on
September 8, 2009, at $1.02 per share, on unusually heavy volume.
5. Throughout the Class Period, Defendants made false and/or misleading statements,
as well as failed to disclose material adverse facts about the Company's business, operations, and
prospects. Specifically, Defendants made false and/or misleading statements and/or failed to
disclose: (1) that loan terms were inappropriately modified, including the extension of terms, the
lowering of interest rates, and the improper use of interest reserve accounts, to delay negative
consequences; (2) that the Company had delayed the recognition of risk rating downgrades and
specific reserves; (3) that the Defendants misrepresented the credit risk of the Company’s loan
portfolio; (4) that the Company failed to properly reserve for loan losses and record impairment
losses on non-performing loans and other real estate owned; (5) that Defendants misstated the
Company’s loan loss provision and related allowance, including charge-offs and the resulting change
in non-performing loan levels, and to other real estate owned expense; (6) that the Company’s
financial results were not prepared in accordance with Generally Accepted Accounting Principles
(“GAAP”); (7) that the Company lacked adequate internal and financial controls; and (8) as a result
of the above, the Company's financial statements were overstated and materially false and
misleading at all relevant times.
6. As a result of Defendants' wrongful acts and omissions, and the precipitous decline
in the market value of the Company's securities, Plaintiff and other Class members have suffered
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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significant losses and damages.
JURISDICTION AND VENUE
7. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act
(15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. §
240.10b-5).
8. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
9. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and Section
27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the alleged fraud
or the effects of the fraud have occurred in this Judicial District. Many of the acts charged herein,
including the preparation and dissemination of materially false and/or misleading information,
occurred in substantial part in this District. Additionally, the Company’s principal executive offices
are located within this Judicial District.
10. In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
11. Plaintiff Huy Tran, as set forth in the accompanying certification, incorporated by
reference herein, purchased UCBH common stock during the Class Period, and suffered damages
as a result of the federal securities law violations and false and/or misleading statements and/or
material omissions alleged herein.
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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12. Defendant UCBH is a Delaware corporation with its principal executive offices
located at 555 Montgomery Street, San Francisco, California, 94111.
13. Defendant Thomas Wu (“Wu”) was, at all relevant times, President, Chief
Executive Officer (“CEO”), and Director of UCBH until his resignation from the Company on
September 4, 2009.
14. Defendant Craig On (“On”) was, at all relevant times, Senior Vice President and
Deputy Chief Financial Officer of UCBH since March 3, 2008, and thereafter, Senior Vice President
and Interim Chief Financial Officer of UCBH since May 12, 2008, and thereafter, Executive Vice
President and Chief Financial Officer (“CFO”) since October 23, 2008.
15. Defendants Wu and On are collectively referred to hereinafter as the "Individual
Defendants." The Individual Defendants, because of their positions with the Company, possessed
the power and authority to control the contents of UCBH’s reports to the SEC, press releases and
presentations to securities analysts, money and portfolio managers and institutional investors, i.e.,
the market. Each defendant was provided with copies of the Company's reports and press releases
alleged herein to be misleading prior to, or shortly after, their issuance and had the ability and
opportunity to prevent their issuance or cause them to be corrected. Because of their positions and
access to material non-public information available to them, each of these defendants knew that the
adverse facts specified herein had not been disclosed to, and were being concealed from, the public,
and that the positive representations which were being made were then materially false and/or
misleading. The Individual Defendants are liable for the false statements pleaded herein, as those
statements were each "group-published" information, the result of the collective actions of the
Individual Defendants.
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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SUBSTANTIVE ALLEGATIONS
Background
16. UCBH operates as the bank holding company for United Commercial Bank, which
provides personal and commercial banking services to small-and medium-sized businesses, business
executives, professionals, and other individuals, and primarily engages in generating deposits and
originating loans.
Materially False And MisleadingStatements Issued During The Class Period
17. The Class Period begins on April 24, 2008. On this day, UCBH issued a press
release entitled, “UCBH HOLDINGS, INC. REPORTS FIRST QUARTER 2008 FINANCIAL
RESULTS.” Therein, the Company, in relevant part, stated:
Earnings of $2.2 Million for the First Quarter of 2008Loan Loss Provision of $35.1 Million for the First Quarter of 2008
Core Fundamentals of UCBH Holdings, Inc. Remain StrongStrong Commercial Business Loan Originations of $481.5 Million
China Minsheng Banking Corp., Ltd. Completed the First Phase of Its Strategic Investment
SAN FRANCISCO, April 24, 2008 — UCBH Holdings, Inc. (NASDAQ: UCBH),the holding company of United Commercial Bank (UCB™ or the “Bank”), todayreported first quarter 2008 net income of $2.2 million, compared with $27.0 millionin the first quarter of 2007. The fully diluted earnings per share were $0.02,compared with $0.26 in the first quarter of 2007. The decrease was attributableprimarily to an increased loan loss provision of $35.1 million recorded in the firstquarter of 2008. The increased loan loss provision was related to specific loan lossreserves on construction loans in distressed areas, as well as an increase in theoverall loan loss reserve ratio. Also impacting earnings was a $3.8 million additionalwrite-down on two non-bank REIT TPS collateralized debt obligations (“CDOs”)and a $1.4 million lower of cost or market (“LOCOM”) charge on commercial realestate loans held for sale. As of quarter end, the credit ratings of the two non-bankREIT TPS CDOs remain unchanged, and the remaining book value of the two CDOswas reduced to $4.6 million at the end of the quarter.
Chairman, President and Chief Executive Officer, Thomas S. Wu said, “We began
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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a comprehensive assessment of our western U.S. retail construction lending portfolioin early October 2007 when the extent of market deterioration became apparent. Thisfull review of all of our residential construction loans in California and Nevada wascompleted during the latter part of the first quarter of 2008. The problems in theconstruction lending portfolio are mainly in the distressed markets in California.These markets continued to deteriorate during the latter part of the first quarter, andas a result, we downgraded a number of loans upon receipt of new appraisals and fullreview of financial information on those projects. We believe it is the right courseof action to make substantial loan loss provisions at this time. Together with the$14.0 million provision in the fourth quarter of 2007, our goal is to strengthen ourbalance sheet and position ourselves to weather this unprecedented marketenvironment.
“The business fundamentals of UCBH remain very strong, particularly in ourcommercial lending and international trade finance business activities. We are verypleased that China Minsheng Banking Corp., Ltd. completed the first phase of itsinvestment, becoming a long-term strategic partner of UCBH. With our strongnational franchise and unique Greater China platform, we believe we are wellpositioned to return to normal profitability starting in the second half of 2008 andstrong earnings growth in the future,” concluded Mr. Wu.
First Quarter 2008 Business Highlights
• In March 2008, China Minsheng Banking Corp., Ltd. completed thefirst phase of its strategic investment agreement with UCBH, inwhich UCBH sold approximately 5.4 million newly-issued shares ofUCBH common stock, or 4.9% of the total outstanding shares, at$17.79 per share, in exchange for $95.7 million in cash proceeds.
• In March, United Commercial Bank (China) Limited received allnecessary approvals from the China Banking Regulatory Commissionfor an expanded license to conduct a full scope of Renminbi(“RMB”) business with all types of domestic Chinese companies inChina.
First Quarter 2008 Financial Summaries
First quarter net income was $2.2 million, down 91.8% from $27.0 million reportedin the corresponding period of last year. Diluted earnings per common share for thefirst quarter of 2008 totaled $0.02, down 92.3% from $0.26 in the correspondingquarter of the prior year.
Net interest income on a fully taxable-equivalent basis, before provision for loanlosses, rose 13.6% to $86.3 million from $75.9 million in the first quarter of 2007.
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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This increase was due to organic balance sheet growth and the acquisitions of TheChinese American Bank (“CAB”) in May 2007 and UCBC in December 2007.
The net interest margin was 3.04% for the first quarter of 2008, a 35 basis pointdecrease from the 3.39% net interest margin for the fourth quarter of 2007 and 22basis point decrease from 3.26% for the first quarter of 2007. The reversal of interestaccrued for the nonperforming assets due to downgrades in the first quarter of 2008had a negative impact of 18 basis points on the net interest margin for the quarter.The decrease in the net interest margin year over year reflects the effect of a 76 basispoint decrease in loan yields, partially offset by a 49 basis point decrease in thefunding costs.
Noninterest income was $3.6 million for the first quarter of 2008, compared with$12.4 million for the corresponding quarter of 2007. Included in first quarter 2008noninterest income was the previously mentioned $3.8 million write-down on twonon-bank REIT TPS CDOs and a $1.4 million charge for a LOCOM adjustment oncommercial real estate loans held for sale. In addition, the Company reportedsignificantly lower gains on the sale of multifamily and commercial real estate loansand securities sales due to the current economic and market conditions. Thesedeclines were partially offset by the increase in total commercial banking fees andservice charges on deposits, reflecting the strong growth in deposit accountsorganically and the acquisitions of CAB and UCBC. The growth in thesecomponents reflects the ongoing expansion of the UCBH’s commercial bankingplatform.
Noninterest expense rose 10.6% to $48.6 million, from $43.9 million in the firstquarter of 2007. This increase was primarily the result of increased personnel costsand occupancy expenses related to the acquisitions of CAB and UCBC in 2007, aswell as the additional staffing required for the growth of the Bank’s commercialbanking business, and the expansion of the Bank’s infrastructure.
The effective tax rate was 26.8% for the first quarter ended March 31, 2008,compared with 34.6% for the first quarter of 2007. The lower effective tax rate wasprimarily due to an increase in tax-exempt income.
Credit Quality
• The deterioration in credit quality related primarily to theconstruction loan portfolio in distressed areas.
• The provision for loan losses was $35.1 million for the first quarterof 2008, compared with $14.0 million for the fourth quarter of 2007,and with $1.0 million for the first quarter of 2007.
• Net loan charge-offs were $12.3 million for the first quarter of 2008,
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CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS
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or 0.62% annualized, compared with net loan charge-offs of $1.7million, or 0.10% annualized, in the first quarter of 2007.
• Nonperforming assets were $185.1 million, or 1.45% of total assets,at March 31, 2008, compared with $57.0 million, or 0.48% of totalassets, at December 31, 2007. The increase in nonperforming assetswas due to the downgrade of certain construction loans in distressedareas by management in the latter part of the first quarter, as a resultof the full review of the construction loan portfolio in California andNevada.
• The ratio of allowance for loan losses to loans held in portfolio was1.25% at March 31, 2008, compared with 1.03% at December 31,2007. The ratio of the allowance for loan losses and the reserve forunfunded commitments to loans held in portfolio excluding cashsecured loans was 1.37% at March 31, 2008, compared with 1.13%at December 31, 2007.
Capital Management
Stockholders’ equity was $1.07 billion at March 31, 2008, reflecting the receipt of$95.7 million of new capital from China Minsheng Banking Corp., Ltd. in March2008. Period-end assets were $12.74 billion. The Tier I risk-based capital ratio of theCompany was 9.17% at March 31, 2008, compared with 8.51% at December 31,2007. The total risk-based capital ratio was 11.55% as of March 31, 2008, comparedwith 10.76% at December 31, 2007. The Company’s capital ratios exceed regulatoryrequirements and continue to be categorized as “well capitalized.” The Bank’scapital ratios approximate those of the Company and is also categorized as “wellcapitalized.”
On April 24, 2008, UCBH’s Board of Directors approved a dividend of $0.04 pershare on the common stock of UCBH, payable on July 11, 2008, to stockholders ofrecord as of June 30, 2008.
Balance Sheet Highlights
Total loans increased by 4.3%, to $8.35 billion at March 31, 2008, from $8.01 billionat December 31, 2007. The increase in loans reflected the continued strong loanoriginations.
Commercial business loans increased by 7.2% to $2.23 billion at March 31, 2008,from $2.08 billion at December 31, 2007. 100% of the commercial business loangrowth was organic. Construction loans increased by 6.2% to $1.77 billion at March31, 2008, from $1.67 billion at December 31, 2007. Commercial real estate loansincreased by 3.5% to $2.58 billion at March 31, 2008, from $2.49 billion at
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December 31, 2007, following $61.5 million of loan sales. Multifamily real estateloans increased by 1.9% to $1.21 billion at March 31, 2008, from $1.19 billion atDecember 31, 2007.
New loan commitments of $1.02 billion for the first quarter of 2008 were comprisedof $964.4 million of commercial loans and $56.6 million of consumer loans.Commercial business loan originations were $481.5 million in the first quarter of2008. Construction loan commitments were $139.0 million in the first quarter of2008. Commercial real estate loan originations were $250.1 million in the firstquarter of 2008. With strong loan commitments in the first quarter, coupled with aloan pipeline of $2.44 billion as of March 31, 2008, we project loan growth willremain solid into the second quarter of 2008.
The average loan yield decreased to 6.94% for the quarter ended March 31, 2008from 7.75% for the quarter ended December 31, 2007, primarily as a result of the FedFunds cuts during the period.
The securities portfolio, including available for sale and held to maturity, was $3.01billion at March 31, 2008, compared with $2.46 billion at December 31, 2007. Thesecurities portfolio was 23.7% of total assets at March 31, 2008, compared with20.8% of total assets at December 31, 2007.
Total deposits increased by 3.9% to $8.08 billion at March 31, 2008, from $7.78billion at December 31, 2007. The average cost of deposits for the quarter endedMarch 31, 2008 was 3.28%, a decrease of 37 basis points, from 3.65% for the quarterended December 31, 2007. The cost of deposits at March 31, 2008 was 2.86%,reflecting management’s continued focus on disciplined deposit pricing of ourdeposit generation strategy.
(Emphasis in original).
18. On May 9, 2008, UCBH filed its Quarterly Report with the SEC on Form 10-Q for
the 2008 fiscal first quarter. The Company's 10-Q was signed by Defendant Wu and reaffirmed the
Company's financial results previously announced on April 24, 2008. The Company’s 10-Q also
contained Sarbanes-Oxley required certifications, signed by Defendant Wu, who certified:
1. I have reviewed this quarterly report on Form 10-Q of UCBH Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statementof a material fact or omit to state a material fact necessary to make the
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statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant asof, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control overfinancial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused suchdisclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known tous by others within those entities, particularly during the period inwhich this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generallyaccepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the endof the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the caseof an annual report) that has materially affected, or is reasonablylikely to materially affect, the registrant’s internal control overfinancial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on ourmost recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of
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directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design oroperation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record,process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant’sinternal control over financial reporting.
19. On July 24, 2008, UCBH issued a press release entitled, “UCBH HOLDINGS, INC.
REPORTS SECOND QUARTER 2008 FINANCIAL RESULTS.” Therein, the Company,
in relevant part, stated:
Earnings of $7.7 Million for the Second Quarter of 2008Strong Net Interest Income Growth of 15.8% Driven by Increase in Net Interest Margin
Strong Deposit Growth of 30.3% Annualized on a Linked Quarter BasisLoan Loss Provision of $32.6 Million for the Second Quarter of 2008
SAN FRANCISCO, July 24, 2008 – UCBH Holdings, Inc. (NASDAQ: UCBH), theholding company of United Commercial Bank (UCB™ or the “Bank”), todayreported second quarter 2008 net income of $7.7 million, compared with $28.2million in the second quarter of 2007. The fully diluted earnings per share were$0.07, compared with $0.27 in the second quarter of 2007. The decrease wasattributable primarily to an increased loan loss provision of $32.6 million recordedin the second quarter of 2008. The loan loss provision was related to higher netcharge-offs, strong loan growth in the second quarter, and an increase in the loan lossreserve ratio. Included in the second quarter 2008 noninterest income was a $10.9million write-down related to our U.S. Government-sponsored Enterprise (“GSE”)preferred stock, the residual tranche of the Bank’s CMBS securitization and acollateralized debt obligation (“CDO”).
Chairman, President and Chief Executive Officer, Thomas S. Wu said, “While thebanking environment remained challenging in the second quarter, we were pleasedwith the improvements in several of our key financial metrics including strong coreearnings growth. While our diluted earnings per share were $0.07 for the secondquarter of 2008, our core earnings per share would have been $0.14 without theeffect of the accounting rules adjustment, which governs the recording of other thantemporary impairment charges. Strong growth in deposits, while managing downdeposit costs, has resulted in an improving trend in net interest income. We chargedoff a significant portion of our problem residential construction credits and continued
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to build our reserve ratio. Management is very focused on monitoring and managingour entire loan portfolio, and we believe we have a solid understanding of potentialproblem areas and our ability to manage our exposure. We are encouraged by thelower loan loss provision for the second quarter compared with the first quarter andanticipate the trend to continue for the remainder of the year. Finally, our fee incomecontinues to exhibit strong growth.
“During the quarter, we raised $135 million in additional capital through thesuccessful sale of a convertible preferred stock issue. This transaction served tostrengthen our already well-capitalized position and allows us to continue expandingcustomer relationships. We are working with China Minsheng Banking Corp. toclose the second phase of its investment in UCBH, which is expected to becompleted before year-end 2008.
“We are cautious about the U.S. economic outlook in the second half of 2008;however, we are confident in our Company’s financial position and our ability tomove forward diligently in implementing our business strategy and improvingprofitability,” concluded Mr. Wu.
Second Quarter 2008 Business Highlights
• In June 2008, UCBH’s capital position was further strengthened with$135 million in new capital from the completion of its offering of135,000 shares of 8.50% Non-Cumulative Perpetual ConvertibleSeries B Preferred Stock (“Preferred Stock”).
• In June 2008, UCBH opened a new full-service branch in SanMarino, California, further strengthening and expanding UCB’spresence in the San Gabriel Valley of the Southern California market.
Second Quarter 2008 Financial Summaries
Second quarter net income was $7.7 million, compared with $28.2 million reportedin the corresponding period of last year. Diluted earnings per common share for thesecond quarter of 2008 totaled $0.07, compared with $0.27 in the correspondingquarter of the prior year.
Net interest income on a fully taxable-equivalent basis, before provision for loanlosses, rose 17.3% to $94.4 million from $80.5 million in the second quarter of 2007.This increase was due to organic balance sheet growth and the acquisitions of TheChinese American Bank (“CAB”) in May 2007 and United Commercial Bank(China) Limited (“UCBC”) in December 2007.
The net interest margin on a tax equivalent basis was 3.17% for the second quarter
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of 2008, a 13 basis point increase from the 3.04% net interest margin for the firstquarter of 2008, and an 18 basis point decrease from 3.35% for the second quarterof 2007. The 13 basis point net interest margin improvement from 3.04% in the firstquarter of 2008 was primarily due to lower funding costs.
Noninterest income was ($1.3) million for the second quarter of 2008, comparedwith $9.9 million noninterest income for the corresponding quarter of 2007. Includedin the second quarter 2008 noninterest income was a $10.9 million write-downrelated to our GSE preferred stock, the residual tranche of the Bank’s CMBSsecuritization and a CDO. In addition, the Company reported significantly lowergains on the sale of multifamily and commercial real estate loans and securities salesdue to the current economic and market conditions. These declines were partiallyoffset by the increase in commercial banking fees and service charges on deposits,reflecting the strong growth in deposit accounts organically, increases in tradefinance business, and the acquisitions of CAB and UCBC.
Noninterest expense rose 14.6% to $49.1 million, from $42.8 million in the secondquarter of 2007. This increase was primarily the result of increased personnel costsand occupancy expenses related to the acquisitions of CAB and UCBC in 2007.
The effective tax rate was 5.7% for the second quarter ended June 30, 2008,compared with 35.5% for the second quarter of 2007. The lower effective tax ratewas primarily due to the tax benefit from tax-exempt income and tax credits.
Credit Quality
• The slight increase in nonperforming assets is primarily associatedwith the previously identified residential construction loan portfolioin distressed areas in California.
• The provision for loan losses was $32.6 million for the secondquarter of 2008, compared with $35.1 million for the first quarter of2008, and $2.1 million for the second quarter of 2007.
• Net loan charge-offs were $26.2 million for the second quarter of2008, or 1.23% annualized, compared with net loan charge-offs of$12.3 million, or 0.60% annualized, in the first quarter of 2008, and$1.4 million, or 0.07% annualized, in the second quarter of 2007.
• Nonperforming assets were $200.0 million, or 1.55% of total assets,at June 30, 2008, compared with $185.1 million, or 1.45% of totalassets at March 31, 2008, and $57.0 million, or 0.48% of total assets,at December 31, 2007. The increase in nonperforming assetscontinued to reflect further deterioration in the appraised values ofcertain residential construction loans in distressed areas.
• The ratio of allowance for loan losses to loans held in portfolio was
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1.26% at June 30, 2008, compared with 1.25% at March 31, 2008,and 1.03% at December 31, 2007. The ratio of the allowance for loanlosses and the reserve for unfunded commitments to loans held inportfolio excluding cash secured loans was 1.37% at June 30 andMarch 31, 2008, compared to 1.13% at December 31, 2007.
Capital Management
Stockholders’ equity was $1.17 billion at June 30, 2008, reflecting the receipt of$135 million in new capital from UCBH’s issuance of 135,000 shares of PreferredStock in June 2008. Period-end assets were $12.87 billion. The Tier I risk-basedcapital ratio of the Company was 10.40% at June 30, 2008, compared with 8.51% atDecember 31, 2007. The total risk-based capital ratio was 12.81% as of June 30,2008, compared with 10.76% at December 31, 2007. The Company’s capital ratiosexceed regulatory requirements and continue to be categorized as “well capitalized.”The Bank’s capital ratios approximate those of the Company and are also categorizedas “well capitalized.”
Balance Sheet Highlights
Total loans increased by 7.9%, to $8.64 billion at June 30, 2008, from $8.01 billionat December 31, 2007. The increase in loans reflect continued strong loanoriginations.
Commercial business loans increased by 12.5% to $2.34 billion at June 30, 2008,from $2.08 billion at December 31, 2007. All of the commercial business loangrowth during the second quarter was through organic growth. Construction loansincreased by 13.4% to $1.89 billion at June 30, 2008, from $1.67 billion at December31, 2007, primarily due to drawdowns from existing loan commitments. Commercialreal estate loans increased by 3.4% to $2.58 billion at June 30, 2008, from $2.49billion at December 31, 2007. Multifamily real estate loans increased by 7.2% to$1.27 billion at June 30, 2008, from $1.19 billion at December 31, 2007.
New loan originations of $826.5 million for the second quarter of 2008 werecomprised of $758.0 million of commercial loans and $68.5 million of consumerloans. Commercial business loan originations were $259.0 million in the secondquarter of 2008. Construction loan originations were $186.1 million in the secondquarter of 2008, with the majority from New York and Seattle. Commercial realestate loan originations were $167.4 million in the second quarter of 2008.
The average loan yield decreased to 6.38% for the quarter ended June 30, 2008 from7.75% for the quarter ended December 31, 2007, primarily as a result of the recentFed Funds rate cuts.
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The securities portfolio, including available for sale and held to maturity, was $2.77billion at June 30, 2008, compared with $2.46 billion at December 31, 2007. Thesecurities portfolio was 21.5% of total assets at June 30, 2008, compared with 20.8%of total assets at December 31, 2007.
Total deposits increased by 11.7% to $8.69 billion at June 30, 2008, from $7.78billion at December 31, 2007. The average cost of deposits for the quarter endedJune 30, 2008 was 2.71%, a decrease of 94 basis points, from 3.65% for the quarterended December 31, 2007. The cost of deposits at June 30, 2008 was 2.51%,reflecting management’s continued focus on disciplined deposit pricing of ourdeposit generation strategy and recent Fed Funds rate cuts.
In conformity with Statement of Financial Accounting Standards No. 142 “Goodwilland Other Intangible Assets”, the Company is evaluating the goodwill associatedwith our domestic and international banking units. We anticipate the evaluation tobe completed prior to the filing of our report on Form 10-Q for the second quarterof this year.
(Emphasis in original).
20. On August 11, 2008, UCBH filed its Quarterly Report with the SEC on Form 10-Q
for the 2008 fiscal second quarter. The Company's 10-Q was signed by Defendants Wu and On, and
reaffirmed the Company's financial results previously announced on July 24, 2008. The Company’s
10-Q also contained Sarbanes-Oxley required certifications, signed by Defendants Wu and On,
substantially similar to the certifications contained in ¶18, supra.
21. On October 23, 2008, UCBH issued a press release entitled, “UCBH HOLDINGS,
INC. REPORTS THIRD QUARTER 2008 FINANCIAL RESULTS.” Therein, the Company, in
relevant part, stated:
• Net Income of $0.00 Per Share Reflects Higher Loan Loss Provision and PreviouslyAnnounced Other Than Temporary Impairments on GSE Securities
• Year-to-date Net Interest Income Grew 11.5%• Year-to-date Loans Outstanding Grew 10.7%, or 10.1% Annualized, from the Prior Quarter
• Credit Reserve Build of $11.1 Million• Year-to-date Deposits Grew 9.6%
• Strong Capital with Total Risk-based Capital at 12.5%
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SAN FRANCISCO, October 23, 2008 – UCBH Holdings, Inc. (NASDAQ: UCBH),the holding company of United Commercial Bank (UCBä or the “Bank”), todayreported a net loss of $493,000, or $0.00 per share, for the third quarter 2008,compared with net income of $30.8 million for the third quarter of 2007. As UCBHbegan paying dividends on the convertible preferred stock issued in June 2008, fullydiluted net income available to common per share was $(0.03), compared with $0.29diluted earnings per share in the third quarter of 2007. Also reflected in the net losswas a loan loss provision of $43.2 million and a $17.8 million write-down related toU.S. Government-sponsored Enterprise (“GSE”) preferred stocks, partially offset bya $9.0 million tax benefit.
Chairman, President and Chief Executive Officer, Thomas S. Wu said, “The bankingindustry experienced an unprecedented market environment in the third quarter, andwith net income of $0.00 per share, UCBH in essence reported a breakeven quarterafter making a larger than anticipated loan loss provision of $43.2 million andwriting down our GSE preferred stock investment by $17.8 million. Our net incomeper share would have been $0.07 per share without the effect of the GSE preferredstock investment write-down. We charged off a significant portion of our problemresidential construction credits and continued to build our reserve ratio, which webelieve is a prudent move given our experience in the third quarter. Managementcontinues to be focused on deposit generation and was successful in keeping depositcosts below the second quarter levels. Our fee income continued to exhibit stronggrowth during the quarter.
“We anticipate closing the second phase of China Minsheng Banking Corp., Ltd.’s(“Minsheng”) investment in UCBH in the upcoming weeks, and we plan toparticipate in the Department of the Treasury’s Capital Purchase Program. As aresult, UCBH’s capital ratios will be in the top quartile of U.S. peer banks, whichwill put us in a very strong position to grow our balance sheet and profitability in thefuture as we move beyond this point in the credit cycle.
“Our earnings power remained strong in the third quarter, as a result of good loanand fee income growth. While we remain cautious in the coming quarters, weanticipate minimal other than temporary impairment charges on our investmentportfolio, and therefore, a profitable fourth quarter and full year 2008.”
Third Quarter 2008 Highlights
• Business momentum continued to be strong.§ Year-to-date net interest income up 11.5%.
§ Total loans up 10.7% from December 2007.• Provision for loan losses, net of tax effect ($0.18 per share), resulting
in a reserve build in the allowance for loan losses, totaling $11.1
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million.• Previously announced other than temporary impairment charges for
GSE preferred stock investment totaling $17.8 million.• United Commercial Bank (China) Limited (“UCBC”) added $6.2
million to earnings in the first nine months of inclusion in UCBH’sconsolidated results of operations.
• Income tax benefit of $9.0 million arising from the impact oftax-exempt bonds, low-income housing credits, and net interestdeduction.
• Capital ratios remain strong and exceed the regulatory capitalrequirements for “well capitalized.”
2008 Corporate Development Updates
• The second phase closing of Minsheng’s investment in UCBH isexpected shortly, pending final approval from China’s StateAdministration of Foreign Exchange.
• Plan to participate in the Department of the Treasury’s CapitalPurchase Program to better position UCBH for future growth andacquisitions.
• Participation in the FDIC Expanded Deposit Insurance fornoninterest-bearing deposits greater than $250,000.
• UCB Hong Kong branch deposits are now 100% guaranteed by theHong Kong Government as announced by the Hong Kong MonetaryAuthority on October 14, 2008.
Third Quarter 2008 Financial Summary
The third quarter net loss was $493,000, compared with net income of $30.8 millionreported in the corresponding period of last year. Net income available to commonper share was $(0.03) for the third quarter of 2008, compared with diluted earningsper share of $0.29 in the corresponding quarter of the prior year.
Net interest income, before provision for loan losses, rose 6.7% to $89.5 million,from $83.9 million in the third quarter of 2007. This increase was due to organicbalance sheet growth as well as the acquisition of UCBC in December 2007.
The net interest margin on a tax equivalent basis was 3.05% for the third quarter of2008, a 12 basis point decrease from the 3.17% net interest margin for the secondquarter of 2008, and a 39 basis point decrease from 3.44% for the third quarter of2007.
Noninterest income (loss) was $(3.8) million for the third quarter of 2008, compared
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with $10.8 million for the corresponding quarter of 2007. Included in the thirdquarter 2008 noninterest income was a $4.8 million gain on the sale ofavailable-for-sale investment securities and higher service charges on deposits;however, noninterest income levels were significantly offset by the $17.8 millionwrite-down of GSE preferred stocks.
Noninterest expense for the third quarter of 2008 rose 19.3% to $52.0 million, from$43.6 million in the third quarter of 2007. This increase was primarily the result ofincreased personnel costs and occupancy expenses related to the acquisition ofUCBC in 2007.
We recognized a $9.0 million income tax benefit on our third quarter 2008 pretaxloss, compared to the $463,000 income tax provision on pretax income for thesecond quarter of 2008. The income tax benefit was primarily caused by a significantdecrease in pretax income during the third quarter of 2008, resulting in items suchas tax-exempt interest income, low-income housing credits, UCBC income taxed ata lower rate, and California net interest deduction having a relatively greater impactto the effective income tax rate.
Year-to-date September 30, 2008 Financial Summary
Total net interest income before provision for loan losses for the nine-month periodended September 30, 2008 was $263.8 million, representing an increase of $27.3million, or 11.5% over the $236.5 million reflected in the nine-month period endedSeptember 30, 2007.
Noninterest income (loss) was $(1.5) million for the nine-month period endedSeptember 30, 2008, compared to noninterest income of $33.2 million for thenine-month period ended September 30, 2007. However, without the $32.5 millionother than temporary impairment charge, noninterest income would have been $30.9million for the nine-month period ended September 30, 2008.
Noninterest expense for the nine months ended September 30, 2008 was $149.6million, representing a $19.3 million, or 14.8% increase over the nine months endedSeptember 30, 2007. Personnel expense increased by $14.9 million, or 20.7% from2007 levels, due primarily to higher staffing levels from UCBC. Our efficiency ratiofor the third quarter of 2008, after adjusting for the impact of the $17.8 million otherthan temporary impairment charges on the GSE preferred stock investments, was50.2%, which compares to 45.99% for the comparable period of 2007.
We recognized a $7.7 million income tax benefit on pretax income for thenine-month period ended September 30, 2008, which was composed primarily of thetax benefit from tax-exempt bonds, low-income housing credits, UCBC income taxed
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at a lower rate, and California net interest deduction having significant impact to theeffective income tax rate.
Credit Quality
• The provision for loan losses was $43.2 million for the third quarterof 2008, compared with $32.6 million for the second quarter of 2008,and $3.0 million for the third quarter of 2007. The provision for loanlosses was $110.9 million for the nine months ended September 30,2008, compared with $6.2 million for the nine months endedSeptember 30, 2007.
• Net loan charge-offs were $31.1 million for the third quarter of 2008,or 1.40% annualized, compared with net loan charge-offs of $26.2million, or 1.24% annualized, in the second quarter of 2008, and $2.3million, or 0.12% annualized, in the third quarter of 2007. Net loancharge-offs were $69.6 million for the nine months ended September30, 2008, compared with $5.4 million for the nine months endedSeptember 30, 2007.
• The increase in nonperforming assets is primarily associated with thepreviously identified residential construction loan portfolio indistressed areas in California.
• Nonperforming assets were $251.6 million, or 1.93% of total assets,at September 30, 2008, compared with $200.0 million, or 1.55% oftotal assets at June 30, 2008, and $57.0 million, or 0.48% of totalassets, at December 31, 2007. The increase in nonperforming assetscontinued to reflect further deterioration in the appraised values ofcertain residential construction loans in distressed areas.
• The ratio of allowance for loan losses to loans held in portfolio was1.36% at September 30, 2008, compared with 1.26% at June 30,2008, and 1.03% at December 31, 2007. The ratio of the allowancefor loan losses and the reserve for unfunded commitments to loansheld in portfolio, excluding cash secured loans, was 1.48% atSeptember 30, 2008 and 1.37% at June 30, 2008, compared to 1.13%at December 31, 2007.
• The Company has provided $41.3 million in provision for loan lossesin excess of net charge-offs for the nine-month period endedSeptember 30, 2008.
Capital Management
Stockholders’ equity was $1.15 billion at September 30, 2008. Period-end assetswere $13.04 billion. The Tier I risk-based capital ratio of the Company was 10.05%at September 30, 2008, compared with 8.51% at December 31, 2007. The totalrisk-based capital ratio was 12.51% as of September 30, 2008, compared with
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10.76% at December 31, 2007. These ratios have increased during 2008, as a resultof Minsheng’s initial investment in UCBH in March 2008, as well as UCBH’sconvertible preferred stock offering, which was completed in June 2008. TheCompany’s capital ratios exceed regulatory requirements and continue to becategorized as “well capitalized.” The Bank’s capital ratios approximate those of theCompany and are also categorized as “well capitalized.”
The second phase closing of Minsheng’s investment in UCBH is expected shortly.The inclusion of the second phase investment proceeds on our capital position atSeptember 30, 2008 would result in the following pro forma capital ratios:
***
Balance Sheet Highlights
Total loans increased by 10.7% to $8.86 billion at September 30, 2008, from $8.01billion at December 31, 2007.
Commercial business loans increased by 21.1% to $2.52 billion at September 30,2008, from $2.08 billion at December 31, 2007. All of the commercial business loangrowth during the third quarter was through organic growth. Construction loansincreased by 16.6% to $1.94 billion at September 30, 2008, from $1.67 billion atDecember 31, 2007, primarily due to drawdowns from existing loan commitments.Commercial real estate loans increased by 5.9% to $2.64 billion at September 30,2008 compared to $2.49 billion at December 31, 2007. Multifamily real estate loanswere $1.19 billion at both September 30, 2008 and December 31, 2007.
New loan originations of $667.4 million for the third quarter of 2008 were comprisedof $623.5 million of commercial loans and $43.9 million of consumer loans.Commercial business loan originations were $194.2 million in the third quarter of2008. Construction loan originations were $95.0 million in the third quarter of 2008,with the majority from New York and Seattle. Commercial real estate loanoriginations were $334.3 million in the third quarter of 2008. Of the $667.4 millionin new loan originations, $212 million were originated from our Greater Chinaregion.
The average loan yield decreased to 6.12% for the quarter ended September 30,2008, from 7.75% for the quarter ended December 31, 2007, primarily as a result ofthe recent Fed Funds rate cuts.
The investment securities portfolio, including available for sale and held to maturity,was $2.73 billion at September 30, 2008, compared with $2.46 billion at December31, 2007. The investment securities portfolio was 21.0% of total assets at September30, 2008, compared with 20.8% of total assets at December 31, 2007.
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Total deposits increased by 9.6% to $8.53 billion at September 30, 2008, from $7.78billion at December 31, 2007. The average cost of deposits for the quarter endedSeptember 30, 2008 was 2.60%, a decrease of 105 basis points, from 3.65% for thequarter ended December 31, 2007. The cost of deposits at September 30, 2008 was2.61%, reflecting management’s continued focus on disciplined deposit pricing ofour deposit generation strategy and the impact of the recent Fed Funds rate cuts.
In accordance with our annual review policy, the Company is evaluating thegoodwill associated with our domestic and international banking units. We anticipatethe evaluation, which is being conducted in conformity with Statement of FinancialAccounting Standards No. 142 “Goodwill and Other Intangible Assets”, to becompleted prior to the filing of our report on Form 10-Q for the third quarter of thisyear.
(Emphasis in original).
22. On October 27, 2008, UCBH issued a press release entitled, “UCBH Holdings, Inc.
Receives Preliminary Approval to Participate in the U.S. Treasury's Capital Purchase Program.”
Therein, the Company, in relevant part, stated:
SAN FRANCISCO--(BUSINESS WIRE)--Oct. 27, 2008--UCBH Holdings, Inc.(NASDAQ:UCBH), the holding company of United Commercial Bank (UCB(TM)),today announced that on October 24, 2008, it has received preliminary approval foran investment of $298 million from the U.S. Department of the Treasury (the"Treasury") to participate in its Capital Purchase Program (the "Program"), theproceeds of which will dramatically strengthen the Company's already strong capitalposition. UCBH's total risk-based capital ratio of 12.5% as of September 30, 2008,which is well above the regulatory requirements of 10.0% for "well capitalized"banks, would increase to 15.0% with the inclusion of this new capital.
"This is an enormous statement of confidence and demonstrates that we are a healthyfinancial organization that can help support the U.S. financial markets in this timeof economic turmoil," said Thomas S. Wu, Chairman, President and Chief ExecutiveOfficer of UCBH Holdings, Inc. "It is indeed a testament to the strength, safety andsoundness of our Company. We intend to put these proceeds to good use for ourcustomers and shareholders. We plan to deploy the funds to support loan growth, toprovide a measure of support against uncertainty in the credit markets and to positionUCBH for additional market opportunities."
The Capital Purchase Program is designed to encourage healthy U.S. financialinstitutions to build capital to increase the flow of financing to U.S. businesses andconsumers and to support the U.S. financial system. Under the Program, the Treasury
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will purchase up to $250 billion of senior preferred shares of qualified U.S.controlled financial institutions. Financial institutions must voluntarily apply toparticipate, but the Treasury determines the eligibility and allocations for qualifyinginstitutions.
23. On November 11, 2008, UCBH filed its Quarterly Report with the SEC on Form
10-Q for the 2008 fiscal third quarter. The Company's 10-Q was signed by Defendants Wu and On,
and reaffirmed the Company's financial results previously announced on October 23, 2008. The
Company’s 10-Q also contained Sarbanes-Oxley required certifications, signed by Defendants Wu
and On, substantially similar to the certifications contained in ¶18, supra.
24. On November 14, 2008, UCBH issued a press release entitled, “UCBH Holdings,
Inc. Raises $298.7 Million in New Capital Through the U.S. Treasury's Capital Purchase Program.”
Therein, the Company, in relevant part, stated:
SAN FRANCISCO, Nov 14, 2008 (BUSINESS WIRE) -- UCBH Holdings, Inc.(NASDAQ:UCBH), the holding company of United Commercial Bank (UCB(TM)),today announced that on November 14, 2008, UCBH issued to the United StatesDepartment of the Treasury (the "Treasury"), in exchange for aggregateconsideration of $298.7 million, a total of 298,737 shares of Series C Fixed-RateCumulative Perpetual Preferred Stock (the "Series C Preferred Stock") with a $0.01par value and a $1,000 per share liquidation preference, and a Warrant (the"Warrant") to purchase up to 7,847,732 shares of UCBH's Common Stock at anexercise price of $5.71. The $298.7 million in new capital dramatically strengthensthe Company's already strong capital position. The proceeds will be treated as Tier1 capital, and UCBH's total risk-based capital ratio of 12.5% as of September 30,2008, which is well above the regulatory requirements of 10.0% for "wellcapitalized" banks, would increase to 15.0% with the inclusion of this new capital.
The Series C Preferred Stock will pay cumulative dividends at a rate of 5% perannum for the first five years and 9% per annum thereafter. The Series C PreferredStock cannot be redeemed during the first three years after issuance except with theproceeds from a "Qualified Equity Offering." Thereafter, UCBH may elect to redeemthe Series C Preferred Stock at the original purchase price plus accrued but unpaiddividends, if any. The related Warrant expires in ten years and is immediatelyexercisable upon its issuance.
"We are very pleased to participate in the second round of the Treasury's Capital
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Purchase Program, which demonstrates that UCBH is a healthy financial institutionthat can help stimulate the U.S. economy and strengthen confidence in the U.S.banking system," said Thomas S. Wu, Chairman, President and Chief ExecutiveOfficer of UCBH Holdings, Inc. "We plan to deploy the capital to support lendingactivities and to position UCBH for additional market opportunities."
25. The statements contained in ¶¶17-24, were materially false and/or misleading when
made because defendants failed to disclose or indicate the following: (1) that loan terms were
inappropriately modified, including the extension of terms, the lowering of interest rates, and the
improper use of interest reserve accounts, to delay negative consequences; (2) that the Company had
delayed the recognition of risk rating downgrades and specific reserves; (3) that the Defendants
misrepresented the credit risk of the Company’s loan portfolio; (4) that the Company failed to
properly reserve for loan losses and record impairment losses on non-performing loans and other
real estate owned; (5) that Defendants misstated the Company’s loan loss provision and related
allowance, including charge-offs and the resulting change in non-performing loan levels, and to
other real estate owned expense; (6) that the Company’s financial results were not prepared in
accordance with GAAP; (7) that the Company lacked adequate internal and financial controls; and
(8) as a result of the above, the Company's financial statements were overstated and materially false
and misleading at all relevant times.
The Truth Begins To Emerge
26. On January 22, 2009, UCBH issued a press release entitled, “UCBH HOLDINGS,
INC. REPORTS FOURTH QUARTER 2008 FINANCIAL RESULTS.” Therein, the Company, in
relevant part, stated:
SAN FRANCISCO, January 22, 2009 – UCBH Holdings, Inc. (NASDAQ: UCBH),the holding company of United Commercial Bank (UCBä or the “Bank”), todayreported a net loss of $0.51 per share. The loss in the quarter reflects a loan lossprovision of $112.1 million and a $10.7 million write-down related to three pooled
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bank trust preferred securities, partially offset by a $50.1 million tax benefit.Excluding the effect of the securities write-down, the net loss would have been $0.39per share.
Fourth Quarter 2008 Highlights
• Deposit growth for the fourth quarter was strong at 5.13%, or 20.52%annualized. This strong growth drove the loan-to-deposit ratio downto 94.6% at year-end, further enhancing our already strong liquidityposition.
• Capital was further strengthened to a very strong level with a totalrisk-based capital ratio at 15.49%.
• Allowance for loan losses was at a strong 2.20% of loans held inportfolio. Provisions for loan losses for the quarter were $112.1million, adding $70.2 million to the allowance for loan losses.
• Despite the economic slowdown, the Company continues to originateloans, focused on prudent underwriting within strict credit guidelineswith $353 million in new loan originations.
• Our Greater China operations experienced good growth in loans anddeposits, with $11.3 million in net contribution to our bottom line.
Full Year 2008 Highlights
• Net interest income before provision for loans losses increased4.18%, despite the challenging current economic environment and theFed Funds rate cuts since Q3 2007.
• Total deposits were $8.97 billion at December 31, 2008, a growth of15.24%, compared to $7.78 billion at December 31, 2007.
• Total loans were $8.67 billion at December 31, 2008, a growth of8.26%, compared to $8.01 billion at December 31, 2007.
• Fee income, including commercial banking fee and service feeincome, was up 7.4% year over year.
• Provision for loan losses for the year was $222.9 million, adding$109.7 million to the allowance for loan losses.
• Capital raises for the year include $135 million from a public offeringof preferred stock in June, $298.7 million from the TreasuryDepartment’s Capital Purchase Program in November, and proceedsof $95.7 million in March and $29.9 million in December from ChinaMinsheng Banking Corp., Ltd.’s two investments in UCBH.
Chairman, President and Chief Executive Officer Thomas S. Wu said, “Our fourthquarter results continue to reflect the unprecedented challenging economicconditions that have affected the industry. In light of the continuing deterioration ofthe market conditions, we continued our ongoing review of our construction loan
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portfolio, as well as conducted our comprehensive review during the quarter, whichwas completed in January 2009.
“Although the 2008 operating environment was very difficult, which led to increasedloan loss provisioning, we are pleased with our deposit and loan growth as well asthe continued build-up of our capital position. While we anticipate the economicenvironment to remain challenging in 2009, we are very optimistic about the futureprofitability growth of UCBH,” concluded Mr. Wu.
Fourth Quarter 2008 Financial Summary
The fourth quarter net loss was $53.7 million. The loss per share was $0.51 for thefourth quarter of 2008.
Net interest income, before provision for loan losses, decreased 16.04% to $72.3million, from $86.1 million in the fourth quarter of 2007. The decrease was primarilydue to the decrease in the net interest margin resulting from the Fed Funds rate cutssince Q3 2007 and the reversal of $9.3 million, equal to 31 basis points, in loaninterest income for nonaccrual loans during the fourth quarter of 2008.
The net interest margin on a tax equivalent basis was 2.44% for the fourth quarter of2008, a 61 basis point decrease from the 3.05% net interest margin for the thirdquarter of 2008, and a 95 basis point decrease from 3.39% for the fourth quarter of2007.
Noninterest income was $3.1 million for the fourth quarter of 2008, compared witha noninterest loss of $2.1 million for the corresponding quarter of 2007. Included inthe fourth quarter 2008 noninterest income was a $2.2 million foreign exchange gainand a $10.7 million other than temporary impairment on three pooled bank trustpreferred securities. The loss in the fourth quarter of 2007 was primarily attributableto an $11.6 million write-down on two REIT-backed CDOs.
Noninterest expense for the fourth quarter of 2008 rose 23.61% to $59.3 million,from $47.9 million in the fourth quarter of 2007. This increase was primarily due to$2.8 million of expenses related to UCBC, which was acquired in December 2007,increase in other real estate owned (“OREO”) expenses of $4.4 million and increasein the FDIC insurance premium of $1.7 million.
We recognized a $42.3 million income tax benefit on our fourth quarter 2008 pretaxloss, compared to the $5.8 million income tax provision on pretax income for thefourth quarter of 2007. The income tax benefit was primarily caused by the pretaxloss for the fourth quarter of 2008 and tax-exempt interest income and low-incomehousing credits.
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Full Year 2008 Financial Summary
Net interest income before provision for loan losses for the year ended December 31,2008, increased by $13.5 million, or 4.18%, to $336.1 million, compared with $322.6million for the year 2007.
Noninterest income was $8.9 million for the year ended December 31, 2008,compared to noninterest income of $30.7 million for the year 2007. However,without the $43.1 million other than temporary impairment charge, noninterestincome would have been $52.1 million for the year ended December 31, 2008, or23.3% increase.
Noninterest expense for the year ended December 31, 2008 was $216.3 million,representing a $38.5 million, or 21.67%, increase over the year ended December 31,2007. The increase was due primarily to increases in personnel expense, the FDICinsurance assessment, and higher OREO expenses. The increase in noninterestexpense includes $6.4 million of full year expenses related to UCBC, which wasacquired in December 2007. Our efficiency ratio for 2008, after adjusting for theimpact of the $43.1 million other than temporary impairment charges on investmentsecurities and $7.1 million of OREO expenses, was 53.91%, which compares to48.58% for the comparable period of 2007.
We recognized a $50.0 million income tax benefit on pretax income for the yearended December 31, 2008. The income tax benefit was primarily caused by thepretax loss for 2008 and tax-exempt interest income and low-income housing credits.
Credit Quality
• The provision for loan losses was $112.1 million for the fourthquarter of 2008, compared with $43.2 million for the third quarter of2008, and $14.0 million for the fourth quarter of 2007. The provisionfor loan losses was $222.9 million for the year ended December 31,2008, compared with $20.2 million for the year ended December 31,2007.
• Net loan charge-offs were $43.6 million for the fourth quarter of2008, or 1.98% annualized, compared with net loan charge-offs of$31.1 million, or 1.40% annualized, in the third quarter of 2008, and$3.9 million, or 0.20% annualized, in the fourth quarter of 2007. Netloan charge-offs were $113.2 million for the year ended December31, 2008, compared with $9.3 million for the full year 2007.
• Nonperforming assets were $433.8 million, or 3.21% of total assets,at December 31, 2008, compared with $251.6 million, or 1.93% oftotal assets, at September 30, 2008, and $57.0 million, or 0.48% oftotal assets, at December 31, 2007. The increase in nonperforming
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assets continued to reflect further deterioration in the appraisedvalues of certain residential construction loans in distressed areas inCalifornia.
• The ratio of allowance for loan losses to loans held in portfolio was2.20% at December 31, 2008, compared with 1.36% at September 30,2008, and 1.03% at December 31, 2007. The ratio of the allowancefor loan losses and the reserve for unfunded commitments to loansheld in portfolio, excluding cash secured loans, was 2.32% atDecember 31, 2008 and 1.48% at September 30, 2008, compared to1.13% at December 31, 2007.
• The Company has provided $109.7 million in provision for loanlosses in excess of net charge-offs for the year ended December 31,2008.
Capital Management
Stockholders’ equity was $1.45 billion at December 31, 2008. Period-end assets were$13.53 billion. The Tier I risk-based capital ratio of the Company was 12.98% atDecember 31, 2008, compared with 8.51% at December 31, 2007. The totalrisk-based capital ratio was 15.49% as of December 31, 2008, compared with10.76% at December 31, 2007. These ratios have increased during 2008 as a resultof Minsheng’s investments in UCBH in March and December, UCBH’s convertiblepreferred stock offering in June, and UCBH’s participation in the Treasury’s CapitalPurchase Program in November. The Company’s capital ratios exceed regulatoryrequirements and continue to be categorized as “well capitalized.” The Bank’scapital ratios approximate those of the Company and are also categorized as “wellcapitalized.”
***
Balance Sheet Highlights
Total loans increased by 8.26% to $8.67 billion at December 31, 2008, from $8.01billion at December 31, 2007.
Commercial business loans increased by 15.90% to $2.41 billion at December 31,2008, from $2.08 billion at December 31, 2007. All of the commercial business loangrowth during the year was organic. Construction loans increased by 19.10% to$1.98 billion at December 31, 2008, from $1.67 billion at December 31, 2007,primarily due to drawdowns from existing loan commitments. Commercial realestate loans increased by 3.62% to $2.58 billion at December 31, 2008 compared to$2.49 billion at December 31, 2007. Multifamily real estate loans were $1.11 billionat December 31, 2008, compared to $1.19 billion at December 31, 2007.
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New loan originations of $353.3 million for the fourth quarter of 2008 werecomprised of $334.1 million of commercial loans and $19.2 million of consumerloans. Commercial business loan originations were $147.9 million in the fourthquarter of 2008. Construction loan originations were $77.9 million in the fourthquarter of 2008. Commercial real estate loan originations were $108.3 million in thefourth quarter of 2008.
The average loan yield decreased to 5.52% for the quarter ended December 31, 2008,from 7.75% for the quarter ended December 31, 2007, primarily as a result of the FedFunds rate cuts since Q3 2007 and the reversal of $9.3 million in loan interest fornonaccrual loans during the fourth quarter of 2008.
The investment securities portfolio, including available for sale and held to maturity,was $3.24 billion at December 31, 2008, compared with $2.46 billion at December31, 2007. The investment securities portfolio was 24.0% of total assets at December31, 2008, compared with 20.8% of total assets at December 31, 2007.
Total deposits increased by 15.24% to $8.97 billion at December 31, 2008, from$7.78 billion at December 31, 2007. The average cost of deposits for the quarterended December 31, 2008 was 2.64%, a decrease of 101 basis points, from 3.65%for the quarter ended December 31, 2007. The cost of deposits at December 31, 2008was 2.47%, reflecting management’s continued focus on disciplined deposit pricingof our deposit generation strategy and the impact of the Fed Funds rate cuts.
In accordance with our policy, the Company is evaluating the goodwill associatedwith our domestic and international reporting units. We anticipate the evaluation,which is being conducted in conformity with Statement of Financial AccountingStandards No. 142 “Goodwill and Other Intangible Assets”, to be completed priorto the filing of our report on Form 10-K for 2008.
(Emphasis in original).
27. On this news, shares of UCBH declined $1.06 per share, more than 30%, to
close on January 23, 2009, at $2.18 per share, on unusually heavy volume.
28. On March 16, 2009, UCBH issued a press release entitled, “UCBH Holdings, Inc.
Strengthens Its Allowance for Loan Loss.” Therein, the Company, in relevant part, stated:
SAN FRANCISCO--(BUSINESS WIRE)--Mar. 16, 2009-- UCBH Holdings, Inc.(NASDAQ:UCBH), the holding company of United Commercial Bank (UCB™),today announced that it has recorded an additional loan loss provision in its resultsof operations for the fourth quarter and year-end 2008. The Company received
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additional information on certain loans, subsequent to its January 22, 2009 pressrelease announcing fourth quarter and year-end 2008 results indicating that furtherloan impairment may have been present as of December 31, 2008 rather than beingapplicable to the first quarter of 2009. As a result, the Company’s 2008 AnnualReport on Form 10-K will reflect an additional loan loss provision of approximately$40 million (pre-tax) in the fourth quarter 2008. This charge will increase thefull-year 2008 net loss to $76.4 million, or $0.70 per common share, from $50.1million, or $0.46 per share as previously reported. For the fourth quarter 2008, thecharge will increase the Company’s previously reported net loss to $82.9 million or$0.76 per share, from $56.5 million or $0.51 per share. The Company has adoptedand will continue to enhance various measures intended to ensure that its ongoingloan loss reserves continue to be identified timely and accurately in this very volatilecredit market.
The increase in allowance for loan loss level as of December 31, 2008 hasstrengthened the Company’s allowance to total loans ratio to 2.66% from thepreviously announced 2.20%, while the Company’s capital ratios remain relativelyunchanged with the revised Tier 1 risk-based capital ratio and total risk-based capitalratio at 12.77% and 15.29%, respectively. The Company’s capital ratios continue tobe substantially above the “well-capitalized” regulatory requirements of 6.00% forTier 1 risk-based capital and 10.00% for total risk-based capital.
With its strong capital and liquidity position, the Company is very well positionedto weather the current economic conditions. Additionally, the Company’s corebusiness continues to perform solidly in the first quarter of 2009, compared to thefourth quarter of 2008. Through February 2009, the Company is generating strongpre-tax, pre-provision earnings, which is on track to exceed fourth quarter 2008pre-tax, pre-provision earnings.
29. On March 16, 2009, UCBH filed its Annual Report with the SEC on Form 10-K for
the 2008 fiscal year. The Company's 10-K was signed by Defendants Wu and On, and reaffirmed
the Company's financial results previously announced on January 22, 2009. The Company’s 10-Q
also contained Sarbanes-Oxley required certifications, signed by Defendants Wu and On,
substantially similar to the certifications contained in ¶18, supra. Therein, the Company, in relevant
part, disclosed:
As of December 31, 2008, management has identified a material weakness in internalcontrol related to the Company’s polices and procedures for monitoring of and
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responding to certain financial reporting risks. Specifically, the Company’s policiesand procedures did not provide for timely evaluation of and revision tomanagement’s approach for assessing credit risk inherent in the Company’s loanportfolio to reflect changes in the economic environment. This material weaknessresulted in a material misstatement of the Company’s loan loss allowance andprovision for loan losses as of and for the year ended December 31, 2008 that hasbeen corrected prior to issuance of the Company’s 2008 consolidated financialstatements.
30. On April 23, 2009, UCBH issued a press release entitled, “UCBH HOLDINGS, INC.
REPORTS FIRST QUARTER 2009 FINANCIAL RESULTS.” Therein, the Company, in relevant
part, stated:
SAN FRANCISCO, April 23, 2009 — UCBH Holdings, Inc. (NASDAQ: UCBH),the holding company of United Commercial Bank (UCBtm or the “Bank”), todayreported a net loss of $0.78 per share. The loss in the quarter reflects a loan lossprovision of $178.5 million, $12.6 million in nonperforming asset dispositionexpenses, and a $5.2 million write-down primarily related to a commercialmortgage-backed security (“CMBS”) and U.S. Government-Sponsored Enterprise(“GSE”) preferred stock investments, offset by $9.5 million in gains from sales ofavailable-for-sale securities and a tax benefit of $83.9 million.
First Quarter 2009 Highlights
• Total core deposits grew by 2.78%, or 11.1% annualized.Noninterest-bearing deposits growth for the first quarter was 1.71%,or 6.84% annualized. Also, the growth of time deposits less than$100,000 was 2.50%, or 9.98% annualized.
• A total of 4,750 new consumer checking accounts were openedduring the first quarter, as we continue to expand our efforts inbuilding a solid and low-cost funding base for future growth.
• The net loan-to-deposit ratio for the first quarter of 2009 improved to90.51%, from the year-end ratio of 94.12%, further enhancing ourliquidity position.
• Provision for loan losses for the quarter was $178.5 million, adding$46.1 million to the allowance for loan losses. Allowance for loanlosses was at a strong 3.30% of loans held in portfolio. The Companybelieves that the allowance was adequate to absorb expected lossesinherent in the loan portfolio at March 31, 2009.
• Despite the continuing economic slowdown, the Company continuesto originate new loans, focused on prudent underwriting within
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conservative credit guidelines with $184.8 million in new loanoriginations.
• Strong residential mortgage loan applications for approximately $88million were generated during the first quarter, of which 84% werefor home purchases.
• Full year 2009 personnel expenses (salary and benefits) areforecasted to be reduced by approximately $5 million due to staffingreductions during the first quarter. This effect will be recognized overfuture quarters. During the first quarter, severance paid related to thisreduction was approximately $0.9 million. Management will continueto focus on cost management during the recessionary period.
• In the first quarter of 2009, the Company recognized an income taxbenefit of $83.9 million.
Chairman, President and Chief Executive Officer Thomas S. Wu said, “Ongoinghousing market weakness has continued to impact our residential construction loanportfolio, which was the primary driver of first quarter results. Our observations onresidential construction markets are mixed as some of the most distressed marketsthat impacted the Bank during 2008 appear to be showing early signs of stabilization,while contiguous markets demonstrated notable deterioration in the first quarter. Asa result of our sharp focus on the management of the problem assets on our books,we have disposed $93.7 million of these assets during the first quarter and willcontinue this momentum throughout the year.
“Although weak economic conditions have slowed overall loan production, wecontinued to generate new loans, with a focus on traditional residential lending as wedeployed the capital received under the U.S. Treasury Capital Purchase Program.Our core banking operations are performing well as commercial and service feeincome was stable, and core deposit growth came in at an 11.1% annualized rate.Although we expect that the 2009 economic environment will continue to be verychallenging, we are optimistic about the future profitability growth of UCBH,”concluded Mr. Wu.
First Quarter 2009 Financial Summary
The first quarter net loss available to common stockholders was $93.7 million. Theloss per share was $0.78 for the first quarter of 2009.
Net interest income for the first quarter of 2009, before provision for loan losses,decreased 3.44% to $69.8 million, from $72.3 million in the fourth quarter of 2008and decreased 16.0% from $83.1 million in the first quarter of 2008. The decreasein the net interest income for the first quarter of 2009 compared to the fourth quarterof 2008 was primarily due to the 36 basis point decrease in the average loan yields
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to 5.16% in the first quarter of 2009, compared to 5.52% in the fourth quarter of2008. The average loan yields for the first quarter of 2009 decreased 178 basispoints, from 6.94% in the first quarter of 2008, primarily due to the Fed Funds ratecuts during 2008.
The net interest margin on a tax equivalent basis was 2.35% for the first quarter of2009, a 9 basis point decrease from 2.44% for the fourth quarter of 2008, and a 69basis point decrease from the 3.04% net interest margin for the first quarter of 2008.The basis point decrease during the first quarter of 2009 compared to the fourthquarter of 2008 was primarily related to the increase in nonperforming loans duringthe first quarter of 2009 and purchases of lower yield investments. Our net interestmargin on a tax equivalent basis decreased from 2.52% to 2.35% for the first quarterof 2009, resulting from the reversal of interest income on nonperforming loans.Compared to the first quarter of 2008, the decrease in net interest margin is primarilydue to a 200 basis point Fed Funds rate decrease since the first quarter of 2008, inaddition to the increase in nonperforming loans and purchase of lower yieldinvestments.
Noninterest income was $7.3 million for the first quarter of 2009, compared with anoninterest income of $5.0 million for the corresponding quarter of 2008. Includedin the first quarter 2009 noninterest income were $9.5 million in gains from sales ofsecurities, offset by a $5.2 million other than temporary impairment primarily relatedto a CMBS and GSE preferred stock investments.
Noninterest expense for the first quarter of 2009 rose 37.14% to $68.6 million, from$50.0 million in the first quarter of 2008. The quarter over quarter increase wasprimarily due to an incremental $12.0 million of additional impairment andwrite-downs and expenses related to other real estate owned (“OREO”) expenses,increase in the FDIC insurance premium of $1.9 million and increase in professionalservice fees of $3.5 million. Excluding the OREO expenses, severance andprofessional fees associated with the review of our loan portfolio, our corenoninterest expense run rate would be approximately $54 million during the firstquarter of 2009.
We recognized an $83.9 million income tax benefit on our first quarter 2009 pretaxloss, compared to $58.8 million income tax benefit for the fourth quarter of 2008 anda $0.8 million income tax provision on pretax income of $3.0 million for the firstquarter of 2008. The income tax benefit was primarily caused by the pretax loss forthe first quarter of 2009, and tax-exempt interest income and low-income housing taxcredits.
Credit Quality
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• The provision for loan losses was $178.5 million for the first quarterof 2009, compared with $152.1 million for the fourth quarter of 2008,and $35.1 million for the first quarter of 2008. Net loan charge-offswere $131.7 million for the first quarter of 2009, or 6.13%annualized, compared with net loan charge-offs of $43.6 million, or1.98% annualized, in the fourth quarter of 2008, and $12.3 million,or 0.62% annualized, in the first quarter of 2008. The net loancharge-offs for the first quarter of 2009 consisted primarily ofresidential construction and commercial loans.
• Nonperforming assets were $700.8 million, or 5.22% of total assets,at March 31, 2009, compared with $530.8 million, or 3.93% of totalassets, at December 31, 2008. The increase in nonperforming assetscontinued to reflect further deterioration in the appraised values ofcertain residential construction loans. The increase in nonperformingassets during the first quarter of 2009 was primarily in residentialconstruction and commercial real estate loans.
• Sales of nonperforming loans and OREO totaled $93.7 million,primarily comprised of residential construction properties located indistressed areas in California.
• The ratio of allowance for loan losses to loans held in portfolio was3.30% at March 31, 2009, compared with 2.66% at December 31,2008. The ratio of the allowance for loan losses and the reserve forunfunded commitments to loans held in portfolio, excluding cashsecured loans, was 3.47% at March 31, 2009, compared to 2.79% atDecember 31, 2008.
Capital Management
Stockholders’ equity was $1.33 billion at March 31, 2009. Period-end assets were$13.42 billion. The Tier 1 risk-based capital ratio of the Company was 12.18% atMarch 31, 2009, compared with 12.77% at December 31, 2008. The total risk-basedcapital ratio was 14.73% as of March 31, 2009, compared with 15.29% at December31, 2008. These ratios have decreased during the first quarter of 2009, primarily dueto the net loss experienced during the first quarter. However, the Company’s capitalratios well exceed regulatory requirements and continue to be categorized as “wellcapitalized.” The Bank’s capital ratios approximate those of the Company and arealso categorized as “well capitalized.”
***
Balance Sheet Highlights
Total loans decreased by 3.25% to $8.39 billion at March 31, 2009, compared to
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$8.67 billion at December 31, 2008.
Commercial business loans decreased by 7.47% to $2.23 billion at March 31, 2009,from $2.41 billion at December 31, 2008. Construction loans decreased by 3.64% to$1.91 billion at March 31, 2009, from $1.98 billion at December 31, 2008.Commercial real estate loans decreased by 2.69% to $2.51 billion at March 31, 2009compared to $2.58 billion at December 31, 2008. Multifamily real estate loans were$1.12 billion at March 31, 2009 and $1.11 billion at December 31, 2008. Residentialmortgage loans increased by 5.69% to $521.1 million at March 31, 2009, from$493.0 million at December 31, 2008.
New loan originations of $184.8 million for the first quarter of 2009 were comprisedof $132.5 million of commercial loans and $52.3 million of consumer loans.Commercial business loan originations were $57.0 million in the first quarter of2009. Construction loan originations were $14.9 million in the first quarter of 2009.Commercial real estate loan originations were $60.6 million in the first quarter of2009.
Total deposits were $8.96 billion at March 31, 2009, from $8.97 billion at December31, 2008. The average cost of deposits for the quarter ended March 31, 2009 was2.36%, a decrease of 28 basis points, from 2.64% for the quarter ended December31, 2008 and 3.28% for the first quarter of 2008. The cost of deposits at March 31,2009 was 2.14%, reflecting management’s continued focus on disciplined depositpricing of our deposit generation strategy.
In accordance with our policy, the Company is evaluating the goodwill associatedwith our domestic and international reporting units. We anticipate the evaluation,which is being conducted in conformity with Statement of Financial AccountingStandards No. 142 “Goodwill and Other Intangible Assets”, to be completed priorto the filing of our report on Form 10-Q for the first quarter of 2009.
(Emphasis in original).
31. On this news, shares of UCBH declined $0.47 per share, more than 22%, to close on
April 24, 2009, at $1.62 per share, on unusually heavy volume.
32. On May 12, 2009, UCBH filed a Notification of Late Filing with the SEC on Form
12b-25. Therein, the Company, in relevant part, disclosed:
UCBH Holdings, Inc. (the “Company”) is filing this Notification of Late Filing onForm 12b-25 with respect to the Company’s Quarterly Report on Form 10-Q for the
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period ended March 31, 2009 (the “Form 10-Q”). The Company is unable, withoutunreasonable effort and expense, to timely file the Form 10-Q because the Companyhas not completed its financial statements for the quarterly period ended March 31,2009. Specifically, the Company’s assessment of the adequacy of the allowance forloan losses and the evaluation of potential goodwill impairment have not beencompleted. The Company currently expects to file the Form 10-Q no later than thefifth calendar day following the prescribed due date.
***
As announced in the Company’s April 23, 2009 Press Release, which was furnishedas an exhibit to the Company’s Current Report on Form 8-K furnished on April 24,2009, the Company initially reported at the time of the Press Release a net loss of$93.7 million, or $0.78 per diluted share, compared to net income of $2.2 million,or $0.02 per diluted share, for the three months ended March 31, 2008. The net lossfor the three months ended March 31, 2009 was primarily attributable to a $178.5million loan loss provision. While the Company does not anticipate changes to itsreported nonperforming asset levels, it is possible that the Company will makeadditional general reserve provisions to its allowance for loan losses at March 31,2009. Any additional provisioning will further increase the Company’s net loss forthe quarter ended March 31, 2009. A reasonable estimate of any such additionalgeneral reserve provisioning cannot be made until the ongoing assessment describedabove is finalized.
33. On this news, shares of UCBH declined $0.44 per share, more than 20%, to close on
May 13, 2009, at $1.66 per share, both on unusually heavy volume.
34. On May 20, 2009, UCBH filed a Current Report with the SEC on Form 8-K.
Therein, the Company, in relevant part, stated:
Item 4.02(a) Non-Reliance on Previously Issued Financial Statements or aRelated Audit Report or Completed Interim Review
On May 18, 2009, UCBH Holdings, Inc. (the “Company”) managementrecommended to the Audit Committee of the Board of Directors, and the AuditCommittee agreed, that the Company’s consolidated financial statements as of andfor the year ended December 31, 2008, should be restated, and the previously issuedconsolidated financial statements, and any related reports from its independentregistered public accounting firm for such period, as well as its previously issuedearnings release for the first quarter of 2009, should no longer be relied on.
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The restatement resulted from a re-examination of the Company’s non-performingasset portfolio conducted by management as part of the ongoing remediation ofcertain ineffective controls as disclosed on March 16, 2009 in Item 9A, DisclosureControls and Procedures in the Company’s Form 10-K filing for the year endedDecember 31, 2008. Such re-examination resulted in the finding and conclusion thatcertain loan impairments, and related reserves and charge-offs associated withspecific collateral dependent loans and other real estate owned properties which hadbeen analyzed and recorded during the first quarter of 2009, should have been moreappropriately recorded and reflected in the fourth quarter of 2008; the Company hasidentified corrections to date that may result in an increase in its pre-tax loss ofapproximately $45 million to $55 million for the year ended December 31, 2008, butthis analysis remains preliminary and has not yet been finalized. The restatement willresult in material adjustments to the loan loss provision and related allowance forloan losses, including charge-offs and the resulting change in non-performing loanlevels, and to other real estate owned expense for the quarter and year endedDecember 31, 2008. Further, although the re-examination has not resulted in anincrease to the previously reported level of non-performing assets, suchre-examination has resulted in the need to record additional general valuationallowances in the first quarter of 2009.
In addition, the Audit Committee is conducting an independent investigationregarding the recognition of impairment losses on non-performing loans and otherreal estate owned. Accordingly, the Company will not file its 2008 Form 10-K/A orits Form 10-Q for the quarter ended March 31, 2009 until after the completion ofsuch investigation.
There is no assurance that the outcome of the investigation will not result inadditional impairment charges or that the Company’s Form 10-Q for subsequentperiods will be timely filed. All statements made in this Form 8-K are made only asof the date set forth at the beginning of this Form 8-K. The Company undertakes noobligation to update the information in this Form 8-K in the event facts orcircumstances subsequently change after the date of the filing of this Form 8-K.
Management and the Audit Committee have discussed the matters disclosed in thisCurrent Report on Form 8-K with KPMG LLP, the Company’s independentregistered public accounting firm.
(Emphasis in original).
35. On July 14, 2009, UCBH issued a press release entitled, “UCBH Holdings, Inc.
Announces Key Actions to Strengthen Capital and Improve Performance.” Therein, the Company,
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in relevant part, stated:
SAN FRANCISCO--(BUSINESS WIRE)--UCBH Holdings, Inc. (NASDAQ:UCBH- News), the holding company of United Commercial Bank (UCB™), todayannounced an action plan to strengthen and preserve capital, aggressively manageits loan portfolio and nonperforming assets, and improve core business performance.The key elements of the plan include:
• Development of a comprehensive capital plan, including theengagement of a financial advisor
• Suspension and/or deferral of the cash dividends on common andpreferred stocks, and the deferral of interest payments on its trustpreferred securities
• Progress on the financial restatement efforts, including areassessment of the Company’s credit risk profile
• Execution of strategies to improve core business performanceincluding execution of nonperforming asset disposition strategies
Chairman, President and Chief Executive Officer Thomas S. Wu said, “Thechallenging economic and operating environment calls for difficult decisions and aspecific action plan that puts UCBH on a solid foundation for the future as wecontinue to work toward completing our financial restatements in the current quarter.By conserving and building capital, focusing on our core banking businesses andcontinuing to provide exceptional service to our customers, we will be in a strongerposition to realize our long-term growth potential.”
“We believe with these steps, our Board and our executive management team areproactively addressing our business issues in order to return the Company toprofitability,” Mr. Wu concluded.
Capital Enhancement
As part of its comprehensive capital planning initiatives, the Company has performedstress tests of its loan portfolio under a number of different scenarios, including theU.S. Treasury’s Supervisory Capital Assessment Program (“SCAP”) methodologyas applied to the top 19 U.S. banks.
The Company’s “Baseline” stress tested regulatory ratios remain above the minimumlevels established for “well capitalized” institutions. However, if asset quality wereto approach a “More Adverse” stress scenario under the SCAP methodology, theCompany’s capital levels would need to be augmented and its tangible commonequity increased.
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In an effort to bolster the Company’s capital ratios, the Board has elected totemporarily defer interest expense payments on all $281.5 million in outstandingjunior subordinated notes related to the Company's trust preferred securities. Theterms of the junior subordinated notes and the trust documents allow the Companyto defer payments of interest for up to 20 consecutive quarterly periods withoutdefault or penalty. During the deferral period, the Company’s respective trusts alsowill suspend the declaration and payment of dividends on the trust preferredsecurities. In addition, during the deferral period, the Company cannot pay cashdividends or make any payment on outstanding debt obligations equally ranked withor junior to the junior subordinated notes. As a result, the Company will also suspendregularly scheduled dividend payments on its common stock and on the $119.2million in principal outstanding 8.50% Non-Cumulative Perpetual Convertible SeriesB Preferred Stock, and defer the $298.7 million in principal outstanding 5.00% FixedRate Cumulative Perpetual Preferred Stock, Series C. By taking these actions, theCompany expects to save approximately $46.2 million in annual cash payments andfurther strengthen its Tier 1 capital ratio by approximately 15 basis points.
UCBH and China Minsheng Banking Corp., Ltd. (“Minsheng”) have agreed toextend their investment agreement until December 31, 2009, which would allowMinsheng to potentially increase its investment up to 20%.
The Company has engaged a financial advisor as part of its comprehensive capitalplanning activities, and expects to take actions that will improve its tangible commonequity in conjunction with the completion of the financial restatement and thesubsequent issuance of current financial statements.
Progress on Financial Restatements
As part of Management’s effort in restating the Company’s financial statements forthe year ended December 31, 2008, and finalizing and issuing the Company’sfinancial statements for the first and second quarters of 2009, extensive effort isbeing applied to accurately reflect the credit risk inherent in the loan portfolio. Toassist with the effort to reassess a majority of the Company’s loan portfolio,including substantially all of the construction loans, the Company engaged threeexternal loan review firms.
Of the loans reviewed, approximately 80 percent were performing loans with nodelinquencies. The Company intends to continue this process to enhanceManagement’s ability to quickly take loss mitigation steps, as needed, to address anyemerging problems in the loan portfolio.
The Company expects to complete its year-end 2008 financial restatement and fileits first and second quarter 2009 financial statements during the third quarter of 2009,
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and plans to hold its Annual Meeting of Stockholders shortly thereafter.
The Company plans to announce second quarter 2009 preliminary unauditedfinancial results by August 14th.
Further Strengthening Core Business
As announced on July 6, 2009, the Company is taking additional steps to furtherstrengthen its Community Banking and Commercial Banking businesses in the U.S.with an organizational structure and leadership team focused on expanding customerrelationships and cross selling, managing risk, controlling expenses, and returningto profitability. Effective July 1, 2009, Doreen Woo Ho has assumed leadership ofCommercial Banking, in addition to her responsibilities for Community Banking.
In light of the Company’s efforts to maintain and strengthen its capitalization, UCBHis also managing its balance sheet and reducing the nonperforming assets. TheCompany will continue to pursue nonperforming loan and OREO sales through 2009.
Through the second quarter, the Company continued the first quarter trends ofexpanding its low cost deposit balances and lowering its cost of deposits, despite thechallenging operating environment.
(Emphasis in original).
36. On this news, shares of UCBH declined $0.23 per share, more than 21%, to close on
July 15, 2009, at $0.86 per share, on unusually heavy volume.
37. On August 6, 2009, UCBH issued a press release entitled, “UCBH HOLDINGS,
INC. ANNOUNCES SELECTED PRELIMINARY SECOND QUARTER 2009 FINANCIAL
INFORMATION.” Therein, the Company, in relevant part, stated:
• Company Reports Substantial Progress on Comprehensive LoanPortfolio Review
• Total Deposits Reached Almost $9 Billion in the Second Quarter;Core Deposits Increased By 4.67%
• Delinquency Trends Improved Significantly in the Second Quarter;Total Delinquencies in the Second Quarter Decreased 59.4% from3.13% of Total Loans in the First Quarter to 1.36%
• Continued to Sell Nonperforming Assets; Completed $101 Millionin Sales During the Quarter
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• Priorities for the Second Half of 2009 are to Execute the Capital Plan,Reduce Nonperforming Assets Aggressively, and Further Strengthenand Grow Core Business Franchise
SAN FRANCISCO, August 6, 2009 - UCBH Holdings, Inc. (NASDAQ: UCBH), theholding company of United Commercial Bank (UCB™ or the “Bank”), todayreported selected preliminary financial information for the second quarter ended June30, 2009. The Company’s preliminary financial information for the second quarterprovided in this release is subject to the final results of the Board Audit Committee’sindependent investigation and the Company’s financial restatement activities.
Summary Business Update
“We are doing everything in our power to complete our financial restatement andbring this process to a successful conclusion,” said Chairman, President and ChiefExecutive Officer Thomas S. Wu. “As we work diligently on putting the creditquality issues behind us, we have completed the review of the majority of our loanportfolio. As a result of these efforts, our nonperforming assets have increased, andwe have provided significantly to our allowance for loan losses to reflect the riskinherent in our loan portfolio. While our nonperforming assets have increased, ourdelinquency trends are improving, which should have a positive impact on oursecond half 2009 results.”
“During the second half of the year, we are positioning the Company to execute ona capital plan in conjunction with our restatement efforts. In addition, we intend toreduce our nonperforming assets aggressively, and continue the momentum in ourcore banking business, which is a very strong franchise. We are working through achallenging environment with a plan designed to enable UCBH to emerge from thisperiod as a stronger financial institution serving our target markets domestically inthe U.S. and across the Pacific in Greater China.”
UCBH’s efforts to further strengthen its core business franchise are reflected by anincrease of 4.67% in core deposits, as compared to year-end 2008. Total depositswere $8.9 billion as of June 30, 2009, and the Company’s net loan-to-deposit ratiowas approximately 85% for the quarter. The average cost of deposits for the quarterwas 1.93%, while the cost of deposits at quarter end was 1.75%.
UCB opened 9,222 new checking accounts in the second quarter, an increase of 89%from the first quarter when the Bank opened 4,873 checking accounts. Additionally,UCB continues to make progress in cross-selling products to its customers;approximately 42% of its community banking customers has three products with theBank, and 21% has four or more products with the Bank.
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Mr. Wu continued, “In our core business, we continue to focus on deposit growth,reducing the cost of deposits, improving our net interest margin, carefully managingour costs, and — as always — meeting our customers’ needs.”
Progress on Loan Review
A key component of the Company’s restatement efforts is the conclusions from itsre-examination of the current credit risk profile of its loan portfolio. The Companyhas reviewed approximately 63% of its outstanding loans by balance, includingnearly 93% of the construction loan portfolio, approximately 66% of the commercialreal estate and approximately 62% of the commercial business loan portfolios. Theextensive nature of this review is the primary contributor to the Company’spreliminary second quarter 2009 credit quality highlights as provided below.
This effort, for which the Company engaged three external loan review firms, isfocused on assessing the accuracy of credit risk ratings, which the Company used toassess the appropriateness of the related allowance for loan loss reserving levels.Additionally, the effort is meant to ensure that credit risk conclusions and relatedallowance reserving conclusions are properly reflected in the quarter in which therisk inherently existed based on the latest appraisals.
Preliminary Second Quarter 2009 Highlights
The Company provided the following update on its operating and financialperformance for the second quarter, subject to the final results of the AuditCommittee’s investigation and the Company’s financial restatement activities:
• Reflecting credit loss assumptions associated with management’s
ongoing review of the loan portfolio, the Company expects that itsprovision for loan losses for the second quarter will be in a range of$300 million to $330 million.
• Net loan charge-offs for the second quarter of 2009 are estimated tobe in a range of $275 million to $300 million.
• The allowance for loan losses is estimated to be in a range of $345million to $365 million, or approximately 4.4% of total loans at June30, 2009.
• The Company completed approximately $101 million in sales ofnonperforming and other assets during the quarter, includingapproximately $69 million in nonperforming loans and approximately$32 million in other real estate owned (“OREO”).
• Nonperforming assets are estimated to be in a range of $835 millionto $875 million at June 30, 2009.
• Total assets are estimated at $12.8 billion at June 30, 2009.
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• Total loans are estimated at $8.0 billion at June 30, 2009. • Total loan delinquencies for the second quarter of 2009 are estimated
to decline by approximately $143 million, or 59.4%, from 3.13% oftotal loans in the first quarter of 2009 to 1.36% of total loans in thesecond quarter of 2009.
• Net interest income on a tax-equivalent basis is estimated at $70.6million for the second quarter of 2009.
The Company also provided the following update on its operating and financialperformance for the second quarter, which is not expected to be impacted by itsfinancial restatement activities as described below:
• Noninterest income is estimated at $7.4 million for the second quarterof 2009, which includes $7.5 million in gains from sales ofavailable-for-sale securities, offset by $3.9 million inother-than-temporary impairments taken on three of ourcollateralized debt obligations.
• Noninterest expense is estimated at $70.5 million for the secondquarter of 2009, including approximately $6 million in additionalFDIC deposit insurance assessments due to a one-time specialassessment imposed by the FDIC on all banks, $6.1 million inexpenses associated with OREO, and $1.7 million in one-timeprepayment fees associated with the payoff of $175 million ofFederal Home Loan Bank advances. The benefit on the net interestmargin from this prepayment will be reflected in the coming quarters.
Capital Management Plan
As announced on July 14th, UCBH has engaged a financial advisor to develop acomprehensive capital plan for a variety of scenarios, which incorporates alternativesfor both capital funding and capital enhancement. The Company has a multi-stepstrategy in place to increase its tangible common equity levels, and plans to executevarious components of its plan starting in the third quarter.
Separately, on August 5, 2009, the Company received approval from NASDAQ fora 180-day extension, until November 16, 2009, to regain compliance with theNASDAQ Marketplace Listing Criteria Rule 5250(c)(1) “Obligation to File PeriodicFinancial Reports”.
(Emphasis in original).
38. The statements contained in ¶¶26, 28-30, 32, 34-35, 37, were materially false and/or
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misleading when made because defendants failed to disclose or indicate the following: (1) that loan
terms were inappropriately modified, including the extension of terms, the lowering of interest rates,
and the improper use of interest reserve accounts, to delay negative consequences; (2) that the
Company had delayed the recognition of risk rating downgrades and specific reserves; (3) that the
Defendants misrepresented the credit risk of the Company’s loan portfolio; (4) that the Company
failed to properly reserve for loan losses and record impairment losses on non-performing loans and
other real estate owned; (5) that Defendants misstated the Company’s loan loss provision and related
allowance, including charge-offs and the resulting change in non-performing loan levels, and to
other real estate owned expense; (6) that the Company’s financial results were not prepared in
accordance with GAAP; (7) that the Company lacked adequate internal and financial controls; and
(8) as a result of the above, the Company's financial statements were overstated and materially false
and misleading at all relevant times.
Disclosures At The End Of The Class Period
39. On September 8, 2009, UCBH issued a press release entitled, “UCBH Holdings, Inc.
Names Doreen Woo Ho Acting President and CEO and Joseph J. Jou Chairman.” Therein, the
Company, in relevant part, stated:
• Chairman, President and CEO Thomas S. Wu Resigns and ChiefOperating Officer and Former Chief Credit Officer EbrahimShabudin to Resign from the Company
• Company Agrees to Action Plan with FDIC and CaliforniaDepartment of Financial Institutions
• Investigation Subcommittee of the Board Audit CommitteeCompletes Independent Investigation
• Company Provides Update to Preliminary Second Quarter FinancialInformation
SAN FRANCISCO--(BUSINESS WIRE)--Sep. 8, 2009-- The Board of Directors of
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UCBH Holdings, Inc., (NASDAQ: UCBH) the holding company of UnitedCommercial Bank (UCB™ or the “Bank”), today announced that it has namedDoreen Woo Ho as acting President and Chief Executive Officer of the Company,succeeding Thomas S. Wu, who has resigned from the Company and from its Board.Chief Operating Officer and former Chief Credit Officer Ebrahim Shabudin is alsoresigning from the Company.
The Board has also: 1) elected Lead Director Joseph J. Jou, who has over 20 yearsof banking experience including as founder and Vice Chairman of First ContinentalBank, as Chairman; 2) entered into an agreement with the Federal Deposit InsuranceCorporation (FDIC) and the California Department of Financial Institutions (DFI)to enhance the strength and stability of the Bank and its operations; 3) received andadopted the findings and recommendations of the Investigation Subcommittee of theBoard Audit Committee’s independent investigation, which began on May 15,enabling the Company to move forward with its financial restatement; and 4)accelerated certain of the Company’s capital planning initiatives, including a reviewof all capital raising and strategic alternatives to maximize shareholder value.
Chairman of the Board of Directors Joseph J. Jou said, “Doreen Woo Ho is the rightperson to lead UCBH through this challenging period and strengthen the foundationof the Company for our valued customers, employees and shareholders. Since joiningUCBH in January 2009, Doreen has provided strong leadership to the CommunityBanking organization and, since July, to the Commercial Banking business as well.Doreen has consistently demonstrated effective leadership in driving operatingperformance and value for clients in a number of executive management roles overmore than 35 years in the banking industry. The full Board is confident in Doreen’sability to the lead the Company.”
“UCBH has a strong franchise, and we are working intensely to address ouroperating challenges and further strengthen our management team in this difficulteconomic environment,” said acting President and Chief Executive Officer DoreenWoo Ho. “Together with our regulators – the FDIC, DFI and the Federal Reserve –we are moving forward to put the Bank in a solid position for the future, while wecontinue to provide our customers in the U.S. and China with our high standards ofservice and our full range of lending, commercial banking and retail bankingproducts and services. As we do this, we are also pursuing a full range of strategicalternatives to strengthen our capital foundation and to maximize shareholder value.”
Ms. Ho’s and Mr. Jou’s appointments are subject to final review and approval by theCompany’s regulators, who have been informed of the changes. In addition, DirectorJoseph E. Vaez has resigned from the Board of Directors of the Company forpersonal reasons, but will continue to actively advise the Company in a consultingcapacity on risk oversight, credit administration and regulatory matters. He will
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continue to be engaged with the Risk Oversight Committee, and is expected to besucceeded by Dennis Wu as Chairman of the Committee.
The Bank also announced that Craig On will continue as Chief Financial Officeruntil the Company recruits a new person for that position. The Company hasrequested that Mr. On re-assume his former position as Deputy Chief FinancialOfficer at that time. The Company is also actively engaged in a search for a ChiefCredit Officer.
China Minsheng Banking Corp., Ltd. expressed continued support of UCBH and thenew leadership under Doreen Woo Ho. China Minsheng views its investment inUCBH as long term and strategic, evidenced by the trade finance and other businesscooperation activities between the two banks. Most recently, China Minsheng hassent 17 training participants to UCBH for training in retail banking and otherdepartments. China Minsheng’s executive management is also planning to visitUCBH in late September to further discuss and enhance the strategic cooperationbetween the two banks.
Agreement with FDIC and DFI
The Bank also announced that it has entered into a consent agreement (the“Agreement”) with the FDIC and the DFI on September 3, relating to the issuanceof an Order to Cease and Desist. This order formally outlines specific steps the Bankmust undertake to strengthen its policies and procedures and enhance the soundnessof the Bank.
The Agreement requires that the Bank perform an assessment of management andaddress weaknesses in management policies and practices, Board supervision,adequacy of capital, loan valuation reserves, loan quality, lending and collectionspractices, operational issues, liquidity and compliance. The Agreement will befurther described in a Current Report on Form 8-K to be filed by the Company withthe Securities and Exchange Commission.
Under the Agreement, the Bank will also submit a written three-year strategic planand profitability plan to the FDIC and the DFI, notify both agencies in advance ofany director and management changes, and obtain prior written consent of bothagencies before opening new branches. The Agreement also requires the Companyto obtain prior approval from its regulators before paying dividends to shareholders.
Working in close consultation with its regulators, the Company and the Bank havealready taken a number of specific actions to address many of the issues identifiedin the Agreement, as the Company works to complete its financial restatement. Theseinclude:
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• Establishing the Risk Oversight Committee of the Company’s Boardof Directors;
• Implementing the Company’s comprehensive capital plan, includingthe engagement of a financial advisor;
• Suspending and/or deferring the cash dividends on the Company’scommon and preferred stocks, and deferred interest payments on itstrust preferred securities;
• Completing a reassessment of the Bank’s credit risk profile andbuilding an appropriate loan loss allowance in the second quarter of2009;
• Executing on strategies to improve credit quality and to develop corebusiness performance, including executing nonperforming assetdisposition strategies; and
• Initiating steps associated with its strategic plan, includingstrengthening the Bank’s Community Banking and CommercialBanking businesses in the U.S to improve profitability.
The Company expects to finalize a similar agreement with the Federal Reserve Bankof San Francisco (FRB) by the end of the third quarter of 2009.
While the plan is being implemented, the Bank is also participating in the FDIC’sTransaction Account Guarantee Program in which all funds in non-interest bearingtransaction deposit accounts are 100% insured. These accounts include: all personaland business checking deposit accounts that do not earn interest, Demand Deposit(DDA) accounts, low-interest NOW accounts (NOW accounts that cannot earn morethan 0.5% interest) and Lawyer Trust IOLTA accounts. This insurance coverage onnon-interest bearing transaction accounts is over and above the $250,000 coveragealready provided to customers. The FDIC recently announced that this coverage willbe extended through June 30, 2010.
All customers’ deposits in UCB’s Hong Kong Branch are fully guaranteed, with nomaximum limit, by the Hong Kong government until the end of 2010.
Conclusion of Independent Investigation
The Investigation Subcommittee of the Board Audit Committee (“Subcommittee”)has completed its previously disclosed independent investigation regarding therecognition of impairment losses on nonperforming loans and other real estate owned(OREO) assets. This represents an important step forward for UCBH and enables theCompany to complete its financial restatement as soon as practicable.
The Subcommittee’s report identified problems resulting both from weaknesses in
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the Bank’s internal controls, consistent with the material weakness previouslyreported, and from deliberate and improper actions and omissions of certain BankOfficers. The report concluded that those problems were driven by an apparent desireto downplay deteriorating financial conditions by delaying or abating risk ratingdowngrades and minimizing the Bank’s overall loan loss allowance.
Key findings include instances of:
• Inappropriate modification of loan terms to delay negativeconsequences, including extending terms, lowering interest rates andimproper use of interest reserve accounts;
• Delay in recognition of risk rating downgrades and specific reserves;• Misrepresentation or omission of relevant information in
communications with the Bank’s Finance Department and withUCBH’s independent auditors, KPMG LLP; and
• Modification of documents in support of the above.
In connection with the above, the report raised serious concerns regarding the actionsof a number of current and former Officers at various levels of the Bank’smanagement. The Board and management are addressing the concerns expressed bythe Subcommittee through appropriate actions, which include additional training,reprimands, re-assignments and, in some instances, termination of employment.
On September 4, 2009, the UCBH Board of Directors adopted the findings andrecommendations of the Subcommittee. In addition, the Subcommittee has advisedthat, later this week, it will provide additional recommendations relating to controlsand procedures to address the matters described above.
Business and Capital Update
The Company also provided an update to certain operating and financial performanceinformation for the second quarter of 2009 previously disclosed on August 6. Thefinancial information provided in this release is subject to the implementation of therecommendations in the Subcommittee’s report and the Company’s financialrestatement.
• Reflecting credit loss assumptions associated with management’songoing review of the loan portfolio, the Company expects that itsprovision for loan losses for the second quarter will be in a range of$360 million to $390 million.
• Net loan charge-offs for the second quarter of 2009 remain estimatedin a range of $275 million to $300 million.
• The allowance for loan losses is estimated to be in a range of $395
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million to $415 million, or approximately 5.0% of total loans at June30, 2009.
• The Company’s estimate of approximately $101 million in sales ofnonperforming and other assets during the quarter remainsunchanged.
• Nonperforming assets are estimated to be in a range of $985 millionto $995 million at June 30, 2009.
• Total loan delinquencies for the second quarter of 2009 are estimatedto decline by approximately $148 million, or 57.6%, from 3.13% oftotal loans in the first quarter of 2009 to 1.17% of total loans in thesecond quarter of 2009.
• Net interest income on a tax-equivalent basis is estimated at $70.6million for the second quarter of 2009.
The Company will be establishing a deferred tax asset valuation allowance and isanticipating a goodwill impairment. Such deferred tax asset valuation allowance andgoodwill impairment will be reflected in the Company’s financial position as of June30, 2009. The deferred tax asset valuation allowance is estimated to be in the rangeof $315 million to $340 million. The goodwill impairment is currently under analysisand has not been finalized, but the amount is expected to be material.
These updates reflect changes to some of the information included as part of theCompany’s FRY-9C regulatory “Call Report” for the period ended June 30, 2009.The Company will file amended Call Reports for all periods impacted by thefinancial restatement once it has concluded its financial restatement efforts.
As announced on July 14, 2009, UCBH has engaged a financial advisor to developa comprehensive capital plan for a variety of scenarios, and has begun executing amulti-step strategy to significantly increase its tangible common equity levels,including a review of all capital raising and strategic alternatives to maximizeshareholder value.
(Emphasis in original).
40. On this news, shares of UCBH declined $0.17 per share, or 14.29%, to close on
September 8, 2009, at $1.02 per share, on unusually heavy volume.
UCBH’S VIOLATION OF GAAP RULESIN ITS FINANCIAL STATEMENTS
FILED WITH THE SEC
41. These financial statements and the statements about the Company's financial
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results were false and misleading, as such financial information was not prepared in conformity with
GAAP, nor was the financial information a fair presentation of the Company's operations due to the
Company's improper accounting for, and disclosure about its revenues, in violation of GAAP rules.
42. GAAP are those principles recognized by the accounting profession as the
conventions, rules and procedures necessary to define accepted accounting practice at a particular
time. Regulation S-X (17 C.F.R. § 210.4 01(a) (1)) states that financial statements filed with the SEC
which are not prepared in compliance with GAAP are presumed to be misleading and inaccurate.
Regulation S-X requires that interim financial statements must also comply with GAAP, with the
exception that interim financial statements need not include disclosure which would be duplicative
of disclosures accompanying annual financial statements. 17 C.F.R. § 210.10-01(a).
43. The fact that UCBH expects to restate its financial statements, and informed
investors that these financial statements should not be relied upon is an admission that they were
false and misleading when originally issued (APB No.20, 7-13; SFAS No. 154, 25).
44. Given these accounting irregularities, the Company announced financial results
that were in violation of GAAP and the following principles:
(a) The principle that "interim financial reporting should be based upon the same
accounting principles and practices used to prepare annual financial statements" was violated (APB
No. 28, 10);
(b) The principle that "financial reporting should provide information that is
useful to present to potential investors and creditors and other users in making rational investment,
credit, and similar decisions" was violated (FASB Statement of Concepts No. 1, 34);
(c) The principle that "financial reporting should provide information about the
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economic resources of an enterprise, the claims to those resources, and effects of transactions,
events, and circumstances that change resources and claims to those resources" was violated (FASB
Statement of Concepts No. 1, 40);
(d) The principle that "financial reporting should provide information about an
enterprise's financial performance during a period" was violated (FASB Statement of Concepts No.
1, 42);
(e) The principle that "financial reporting should provide information about how
management of an enterprise has discharged its stewardship responsibility to owners (stockholders)
for the use of enterprise resources entrusted to it" was violated (FASB Statement of Concepts No.
1, 50);
(f) The principle that "financial reporting should be reliable in that it represents
what it purports to represent" was violated (FASB Statement of Concepts No. 2, 58-59);
(g) The principle that "completeness, meaning that nothing is left out of the
information that may be necessary to insure that it validly represents underlying events and
conditions" was violated (FASB Statement of Concepts No. 2, 79); and
(h) The principle that "conservatism be used as a prudent reaction to uncertainty
to try to ensure that uncertainties and risks inherent in business situations are adequately considered"
was violated (FASB Statement of Concepts No. 2, 95).
45. The adverse information concealed by Defendants during the Class Period and
detailed above was in violation of Item 303 of Regulation S-K under the federal securities law (17
C.F.R. §229.303).
CLASS ACTION ALLEGATIONS
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46. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased UCBH's
securities between April 24, 2008 and September 8, 2009, inclusive (the "Class Period") and who
were damaged thereby. Excluded from the Class are Defendants, the officers and directors of the
Company, at all relevant times, members of their immediate families and their legal representatives,
heirs, successors or assigns and any entity in which Defendants have or had a controlling interest.
47. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, UCBH’s securities were actively traded on National
Association of Securities Dealers Automated Quotations Market ("NASDAQ"). While the exact
number of Class members is unknown to Plaintiff at this time and can only be ascertained through
appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the
proposed Class. Millions of UCBH shares were traded publicly during the Class Period on the
NASDAQ and as of March 31, 2009, UCBH had more than 120 million shares of common stock
outstanding. Record owners and other members of the Class may be identified from records
maintained by UCBH or its transfer agent and may be notified of the pendency of this action by
mail, using the form of notice similar to that customarily used in securities class actions.
48. Plaintiff's claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of federal
law that is complained of herein.
49. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
50. Common questions of law and fact exist as to all members of the Class and
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predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) Whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b) Whether statements made by Defendants to the investing public during the
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of UCBH; and
(c) To what extent the members of the Class have sustained damages and the
proper measure of damages.
51. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden of
individual litigation makes it impossible for members of the Class to individually redress the wrongs
done to them. There will be no difficulty in the management of this action as a class action.
UNDISCLOSED ADVERSE FACTS
52. The market for UCBH’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, UCBH’s securities traded at artificially inflated prices during the Class Period. Plaintiff
and other members of the Class purchased or otherwise acquired UCBH’s securities relying upon
the integrity of the market price of the Company’s securities and market information relating to
UCBH, and have been damaged thereby.
53. During the Class Period, Defendants materially misled the investing public,
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thereby inflating the price of UCBH’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements, as
set forth herein, not false and/or misleading. Said statements and omissions were materially false
and/or misleading in that they failed to disclose material adverse information and/or misrepresented
the truth about UCBH’s business, operations, and prospects as alleged herein.
54. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or misleading
statements about UCBH’s financial well-being and prospects. These material misstatements and/or
omissions had the cause and effect of creating in the market an unrealistically positive assessment
of the Company and its financial well-being and prospects, thus causing the Company's securities
to be overvalued and artificially inflated at all relevant times. Defendants’ materially false and/or
misleading statements during the Class Period resulted in Plaintiff and other members of the Class
purchasing the Company's securities at artificially inflated prices, thus causing the damages
complained of herein.
LOSS CAUSATION
55. Defendants' wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
56. During the Class Period, Plaintiff and the Class purchased UCBH’s securities at
artificially inflated prices and were damaged thereby. The price of the Company's securities
significantly declined when the misrepresentations made to the market, and/or the information
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alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’s losses.
SCIENTER ALLEGATIONS
57. As alleged herein, Defendants acted with scienter in that Defendants knew that the
public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced in
the issuance or dissemination of such statements or documents as primary violations of the federal
securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of
information reflecting the true facts regarding UCBH, his/her control over, and/or receipt and/or
modification of UCBH's allegedly materially misleading misstatements and/or their associations
with the Company which made them privy to confidential proprietary information concerning
UCBH, participated in the fraudulent scheme alleged herein.
58. Additionally, during the Class Period, and with the Company’s securities trading at
artificially inflated prices, on or around June 11, 2008, the Company offered 135,000 shares of
8.50% Non-Cumulative Perpetual Convertible Series B Preferred Stock, for gross proceeds to the
Company in excess of $155 million.
APPLICABILITY OF PRESUMPTION OF RELIANCE(FRAUD-ON-THE-MARKET DOCTRINE)
59. The market for UCBH’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
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disclose, UCBH’s securities traded at artificially inflated prices during the Class Period. On
September 19, 2008 the price of the Company’s common stock reached a Class Period high of $9.98
per share. Plaintiff and other members of the Class purchased or otherwise acquired the Company’s
securities relying upon the integrity of the market price of UCBH’s securities and market
information relating to UCBH, and have been damaged thereby.
60. During the Class Period, the artificial inflation of UCBH’s stock was caused by
the material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or misleading
statements about UCBH’s business, prospects, and operations. These material misstatements and/or
omissions created an unrealistically positive assessment of UCBH and its business, operations, and
prospects, thus causing the price of the Company's securities to be artificially inflated at all relevant
times, and when disclosed, negatively affected the value of the Company stock. Defendants’
materially false and/or misleading statements during the Class Period resulted in Plaintiff and other
members of the Class purchasing the Company's securities at such artificially inflated prices, and
each of them has been damaged as a result.
61. At all relevant times, the market for UCBH’s securities was an efficient market
for the following reasons, among others:
(a) UCBH stock met the requirements for listing, and was listed and actively
traded on the NASDAQ, a highly efficient and automated market;
(b) As a regulated issuer, UCBH filed periodic public reports with the SEC
and the NASDAQ;
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(c) UCBH regularly communicated with public investors via established
market communication mechanisms, including through regular dissemination of press releases on
the national circuits of major newswire services and through other wide-ranging public disclosures,
such as communications with the financial press and other similar reporting services; and
(d) UCBH was followed by securities analysts employed by major brokerage
firms who wrote reports about the Company, and these reports were distributed to the sales force
and certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
62. As a result of the foregoing, the market for UCBH’s securities promptly digested
current information regarding UCBH from all publicly available sources and reflected such
information in UCBH’s stock price. Under these circumstances, all purchasers of UCBH’s securities
during the Class Period suffered similar injury through their purchase of UCBH’s securities at
artificially inflated prices and a presumption of reliance applies.
NO SAFE HARBOR
63. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. The
statements alleged to be false and misleading herein all relate to then-existing facts and conditions.
In addition, to the extent certain of the statements alleged to be false may be characterized as
forward looking, they were not identified as “forward-looking statements” when made and there
were no meaningful cautionary statements identifying important factors that could cause actual
results to differ materially from those in the purportedly forward-looking statements. In the
alternative, to the extent that the statutory safe harbor is determined to apply to any forward-looking
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statements pleaded herein, Defendants are liable for those false forward-looking statements because
at the time each of those forward-looking statements was made, the speaker had actual knowledge
that the forward-looking statement was materially false or misleading, and/or the forward-looking
statement was authorized or approved by an executive officer of UCBH who knew that the statement
was false when made.
FIRST CLAIMViolation of Section 10(b) of
The Exchange Act and Rule 10b-5Promulgated Thereunder Against All Defendants
64. Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
65. During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase UCBH's securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took
the actions set forth herein.
66. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made untrue
statements of material fact and/or omitted to state material facts necessary to make the statements
not misleading; and (iii) engaged in acts, practices, and a course of business which operated as a
fraud and deceit upon the purchasers of the Company's securities in an effort to maintain artificially
high market prices for UCBH’s securities in violation of Section 10(b) of the Exchange Act and
Rule 10b-5. All Defendants are sued either as primary participants in the wrongful and illegal
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conduct charged herein or as controlling persons as alleged below.
67. Defendants, individually and in concert, directly and indirectly, by the use, means
or
instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about UCBH’s financial
well-being and prospects, as specified herein.
68. These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a course
of conduct as alleged herein in an effort to assure investors of UCBH’s value and performance and
continued substantial growth, which included the making of, or the participation in the making of,
untrue statements of material facts and/or omitting to state material facts necessary in order to make
the statements made about UCBH and its business operations and future prospects in light of the
circumstances under which they were made, not misleading, as set forth more particularly herein,
and engaged in transactions, practices and a course of business which operated as a fraud and deceit
upon the purchasers of the Company’s securities during the Class Period.
69. Each of the Individual Defendants' primary liability, and controlling person liability,
arises from the following facts: (i) the Individual Defendants were high-level executives and/or
directors at the Company during the Class Period and members of the Company's management team
or had control thereof; (ii) each of these defendants, by virtue of their responsibilities and activities
as a senior officer and/or director of the Company, was privy to and participated in the creation,
development and reporting of the Company's internal budgets, plans, projections and/or reports; (iii)
each of these defendants enjoyed significant personal contact and familiarity with the other
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defendants and was advised of, and had access to, other members of the Company's management
team, internal reports and other data and information about the Company's finances, operations, and
sales at all relevant times; and (iv) each of these defendants was aware of the Company's
dissemination of information to the investing public which they knew and/or recklessly disregarded
was materially false and misleading.
70. The defendants had actual knowledge of the misrepresentations and/or omissions of
material facts set forth herein, or acted with reckless disregard for the truth in that they failed to
ascertain and to disclose such facts, even though such facts were available to them. Such defendants'
material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose
and effect of concealing UCBH's financial well-being and prospects from the investing public and
supporting the artificially inflated price of its securities. As demonstrated by Defendants’
overstatements and/or misstatements of the Company's business, operations, financial well-being,
and prospects throughout the Class Period, Defendants, if they did not have actual knowledge of the
misrepresentations and/or omissions alleged, were reckless in failing to obtain such knowledge by
deliberately refraining from taking those steps necessary to discover whether those statements were
false or misleading.
71. As a result of the dissemination of the materially false and/or misleading information
and/or failure to disclose material facts, as set forth above, the market price of UCBH’s securities
was artificially inflated during the Class Period. In ignorance of the fact that market prices of the
Company’s securities were artificially inflated, and relying directly or indirectly on the false and
misleading statements made by Defendants, or upon the integrity of the market in which the
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securities trades, and/or in the absence of material adverse information that was known to or
recklessly disregarded by Defendants, but not disclosed in public statements by Defendants during
the Class Period, Plaintiff and the other members of the Class acquired UCBH’s securities during
the Class Period at artificially high prices and were damaged thereby.
72. At the time of said misrepresentations and/or omissions, Plaintiff and other members
of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the other
members of the Class and the marketplace known the truth regarding the problems that UCBH was
experiencing, which were not disclosed by Defendants, Plaintiff and other members of the Class
would not have purchased or otherwise acquired their UCBH securities, or, if they had acquired such
securities during the Class Period, they would not have done so at the artificially inflated prices
which they paid.
73. By virtue of the foregoing, Defendants have violated Section 10(b) of the Exchange
Act and Rule 10b-5 promulgated thereunder.
74. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and the
other members of the Class suffered damages in connection with their respective purchases and sales
of the Company's securities during the Class Period
SECOND CLAIMViolation of Section 20(a) of
The Exchange Act Against the Individual Defendants
75. Plaintiff repeats and realleges each and every allegation contained above as if fully
set forth herein.
76. The Individual Defendants acted as controlling persons of UCBH within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
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positions, and their ownership and contractual rights, participation in and/or awareness of the
Company's operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had the
power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various statements
which Plaintiff contends are false and misleading. The Individual Defendants were provided with
or had unlimited access to copies of the Company's reports, press releases, public filings and other
statements alleged by Plaintiff to be misleading prior to and/or shortly after these statements were
issued and had the ability to prevent the issuance of the statements or cause the statements to be
corrected.
77. In particular, each of these Defendants had direct and supervisory involvement in the
day-to-day operations of the Company and, therefore, is presumed to have had the power to control
or influence the particular transactions giving rise to the securities violations as alleged herein, and
exercised the same.
78. As set forth above, UCBH and the Individual Defendants each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of their
positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of
the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
other members of the Class suffered damages in connection with their purchases of the Company's
securities during the Class Period.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
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(a) Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b) Awarding compensatory damages in favor of Plaintiff and the other Class members
against all defendants, jointly and severally, for all damages sustained as a result of Defendants'
wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in this
action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
DATED: September 21, 2009 GLANCY BINKOW & GOLDBERG LLP
By: _________________________________ Lionel Z. GlancyMichael Goldberg
1801 Avenue of the Stars, Suite 311Los Angeles, California 90067Telephone: (310) 201-9150Facsimile: (310) 201-9160
LAW OFFICES OF HOWARD G. SMITHHoward G. Smith3070 Bristol Pike, Suite 112Bensalem, PA 19020Telephone: (215) 638-4847Facsimile: (215) 638-4867
Attorneys for Plaintiff Huy Tran