BOH parent to divest itself of most operations outside state
• Pacific Century reports net drop
By Frank Cho and Glenn Scott
Advertiser Staff Writers
Pacific Century Financial Corp.'s sweeping reorganization plan calls for the sale or closure of nearly all of its operations outside the state, shifting focus back to Hawai'i and reversing years of far-flung expansion efforts.
The plan unveiled yesterday by the parent company of Bank of Hawaii will shave $5 billion in assets and 1,000 jobs, creating a smaller, leaner, more streamlined operation that will focus on building market share in Hawaii and being more responsive to customers and shareholders.
"We will market only one brand — the Bank of Hawaii brand," Chief Executive Officer Michael O'Neill said in a conference call with analysts in New York. "Hawai'i is our home, and it is there that we'll concentrate."
To reflect the new strategy, O'Neill also said he intends to ask shareholders to jettison the "Pacific Century" title and call the company simply Bank of Hawaii Corp.
Pacific Century has been gradually divesting itself of underperforming assets in recent months, but the new plan leaves no doubt that the company is completing its turnaround from expansion in the Pacific Rim. If successful, the bank could emerge an even stronger competitor in the Hawai'i market.
O'Neill said he expects the plan to cut operating costs by half and generate $800 million to shore up investor confidence and to reinvest in operations on the Islands, where he said the bank can do more to connect with its customers.
"We have a truly great franchise within our core footprint," he said. "Bankoh has an average of six out of every 10 households in Hawai'i."
Revealing room for growth, though, he said the bank provides just a single service to 36 percent of those customers.
More streamlined
Rodney Shinkawa, executive director for the Hawai'i Bankers Association, and Joe Morford, an analyst with Dain Rauscher Wessels in San Francisco, said a more streamlined Bank of Hawaii likely will increase the level of competition for customers in the state.
Shinkawa said competition is always aggressive on the Islands, but it may get even keener. "In the long run," he said, "it will be good for consumers and for the general banking community as a whole."
Added Morford: "First Hawaiian Bank is not going to give up its business without a fight."
O'Neill's restructuring plan comes as the Honolulu-based company seeks to regain its financial footing after three years of falling profits from underperforming operations around the Pacific. Many analysts who had expected the bank to sell some far-flung operations applauded the announcement yesterday.
"It is what I was hoping for," said James Bradshaw, an analyst with D.A. Davidson & Co. in Portland, Ore. "I think now that they will spend some energy and capital rebuilding their growth in Hawai'i."
By selling assets in Southern California, the South Pacific and elsewhere, though, the company will give up its position as the largest bank based in Hawai'i. With assets of $9 billion when the plan is complete, it will be the second-largest in the state behind BancWest; American Savings Bank will be the third-largest, with assets of about $6 billion.
California bank on block
The decision to dismantle the Pacific Rim operations comes just five months after the company hired O'Neill, a former Bank of America executive, to improve its financial performance. Pacific Century's falling profits and increasing asset-quality problems had indirectly forced former chief executive officer Larry Johnson into retirement.
The restructuring, which has been planned for four months, starts immediately and runs through 2003, O'Neill said. Most of the job cuts will be outside Hawai'i.
Now for sale is Pacific Century's California subsidiary, Pacific Century Bank, which has 19 branches, mostly in Southern California, representing $1.1 billion in assets and $1.3 billion in deposits. Analysts estimated its sale could bring as much as $175 million.
"I think there is going to be a lot of interest in the California property," Morford said. "If there are a lot of bidders, then that figure could rise."
Brian Harvey, an analyst with Fox-Pitt Kelton, said Zions Bancorp, which has agreed to purchase Pacific Century's nine bank branches in Arizona, will be a likely bidder. He said Honolulu rival BancWest may also be interested.
Officials for BancWest Corp., First Hawaiian's parent company, declined comment yesterday .
Also for sale are dozens of branches in French Polynesia, New Caledonia, Papua New Guinea, the Solomon Islands, Vanuatu and Fiji in the South Pacific, where political, social and economic stability has been a problem for the company.
Asia, Australia assets
In Asia, the bank plans to sell five branches and three offices, all outside Japan. In Australia, Pacific Century intends to sell its 17 percent stake in Bank of Queensland. Officials said they hope to gain $3 million to $5 million from that sale.
O'Neill said he will begin marketing the businesses for sale this week and expects to announce a buyer for the California subsidiary by the end of the second quarter. He said the South Pacific banks may take longer to sell, and operations in Asia may have to be closed if a buyer cannot be found.
In addition to the Hawai'i franchise, O'Neill said the bank will keep two branches in American Samoa and a representative office in Japan for strategic reasons.
O'Neill has wasted little time dealing with Pacific Century's problems. Since being hired last Nov. 3, he has sold the company's credit card portfolio for $75 million, hired three new vice chairmen, unloaded several underperforming branches in Arizona and planned the biggest shake-up in the company's history.
Richard Dahl, the company's chief operating officer and president of the Bank of Hawaii, will oversee the sale of assets.
Bank may get stronger
Much of the $800 million in capital from divestitures will likely be used to buy back stock later this year. That program has yet to be approved by federal regulators.
Pacific Century is operating under a memorandum of understanding with banking regulators since last year because of asset-quality problems. The agreement requires the company to seek approval for certain financial actions.
"I would hope that as we continue to improve our performance, and as we take a lot of risk out of the business, (regulators) will notice and lift the MOU," O'Neill said.
Pacific Century, formerly Bancorp. Hawaii, is the state's second-oldest financial institution and until recently its biggest.
As the company grows stronger by shedding less-profitable units and growing its share price and core markets, some analysts suggested it could make the bank a more attractive candidate for acquisition.
But O'Neill said yesterday he sees profitability as a protection. "The better you perform, the more expensive your company becomes...," he said. "We have every expectation that with the price increasing, our ability to stay independent will increase."
Frank Cho can be reached by phone at 525-8088, or by e-mail at fcho@honoluluadvertiser.com.
