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Lippo Bank California struggles for comeback after bad loans, publicity

November 2, 1997

LOS ANGELES (AP) _ Bad loans and worse publicity linking owner James Riady and former chief executive John Huang to questionable campaign contributions nearly put Lippo Bank California out of business.

But the future is looking brighter for the tiny commercial bank which, from its Chinatown headquarters, caters to small and medium-sized businesses in California’s Asian business community.

Bolstered by the sale of some non-performing loans and a $6 million cash infusion from Riady, Lippo recently reported its first quarterly profit in three years.

Equally important, the bank appears no longer to hold the attention of Senate investigators examining the legality of foreign donations to the Democratic National Committee during the 1996 presidential campaign.

``Our name has basically dropped out of the investigation,″ bank president James Per Lee said in a recent interview. ``We want to get this behind us and get back to running the bank.″

Lippo, with about $92 million in assets, takes its name from Lippo Group, the international business empire led by Riady’s father, Mochtar Riady. But it is not part of Lippo Group, or its subsidiary, Lippo Bank of Indonesia.

Per Lee had been scheduled to appear in September before the Senate investigating committee. He was to answer questions about Riady’s request that Lippo Group send money to Lippo Bank to cover expenses, including a $50,000 donation to the DNC. But his appearance was canceled shortly before he was to testify.

Per Lee said in the interview he was not aware of the transaction at the time, but research showed it was handled like any other.

``I had no reason to know. I didn’t know,″ he said of the transaction. ``The last thing you or anyone else in this country wants is for banks to judge the propriety of checks that are written.″

Riady purchased a controlling interest in the state-chartered bank in 1984, when it was based in San Francisco and operated as the Bank of Trade of California. Huang was named president and chief executive from 1986 to 1988, but has not held a position since then.

Before the Senate investigation began, Per Lee’s principal concern was getting the bank out from under the burden of bad real estate loans made in the 1980s that prompted four cease and desist orders from the Federal Deposit Insurance Corp.

With its offices in Chinatown and employees fluent in Asian languages, Lippo carved out a niche among immigrants who often were uncomfortable dealing with larger U.S. banks. Typical clients are businesses that export to Asian or import products for the ethnic Asian community, such as specialty foods and clothing.

Lippo’s financial problems are the consequence of commercial real estate loans made primarily during the late 1980s. In 1990, recession set in and the real estate market collapsed. Payments on many of the bank’s loans began to falter.

``The underwriting standards were not what they should have been,″ said Per Lee. ``Second, it was followed by one of the worst economic downturns. If it had just been one or the other, it probably wouldn’t have been so bad.″

Lippo was not alone in its problems. A number of small banks ran onto hard times after the recession struck, said Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County.

``That is something that we have seen that has impacted a lot of international banks that are here,″ he said. ``In the early 1990s, the California economy went through a major restructuring. Anybody who was doing real estate loans was sweating bullets.″

Since taking over as president and CEO in 1994, Per Lee has cut costs by closing one of the bank’s two branches, laid off 25 employees, sold off some of the non-performing loans and tightened credit screening.

In April, Riady added $6 million to the bank’s capital reserves, a move aimed at easing regulators’ concerns about the remaining non-performing loans.

A team from the FDIC is scheduled to visit in November in what Per Lee hopes will lead to lifting of the last cease and desist order.

``It’s a highly charged atmosphere that the regulators find themselves in because of the political atmosphere,″ he said. ``But we’ve got a good team of people who are running the place. We’re getting the results that we want in terms of asset quality.″

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