Posted on: Sunday, May 27, 2001

Hawai'i banks get ready for all-out turf war

• Profiles of Hawai'i's leading banks

By Frank Cho
Advertiser Staff Writer

Customers at First Hawaiian Bank and other banks could look forward to better deals for consumers as industry executives prepare for heightened competition. Advertiser library photo

When Michael O'Neill, chairman and chief executive officer of Pacific Century Financial Corp., stood before a Rotary Club luncheon last week and started speaking French, it was a poke-in-the-eye at rival BancWest Corp., which recently announced it was being purchased by France's biggest bank.

"Sorry," O'Neill quipped to the audience after speaking a few phrases. "For a moment I was a little confused and thought I was representing another bank in town."

O'Neill added that he wanted to clarify things for the public — namely that Bank of Hawaii is still an independently owned and locally-controlled institution.

"I did a little bit of jabbing. It's not my intention to get unpleasant," O'Neill said later, adding that his relationship with BancWest Chairman and Chief Executive Officer Walter Dods is friendly.

The incident, however, serves to underscore the sharpening competition among Hawai'i's biggest financial institutions, who for years have barely publicly acknowledged one another's existence.

Recent changes in leadership and strategy at the banks have changed the competitive landscape, forcing them to differentiate themselves and their products more sharply than ever before. Analysts said the changes may start a turf war that could leave Hawai'i consumers the real winners.

"There may be a fee war coming," said David Proko, an analyst with Weiss Ratings Inc., a Palm Beach Garden, Fla.-based bank rating firm.

Proko said increased competition — particularly in a crowded market like Hawai'i's — typically means improved products and better prices for consumers and local businesses. "For consumers, a quarter here and a quarter there starts to add up and you could see a runoff of customers start to switch banks."

A shifting landscape

For years, Hawai'i's banking scene has been relatively unchanged. But in the past two months, several significant shifts have occurred.

• Bank of Hawaii, suffering from asset-quality problems and losing ground to other banks, has a new chief executive and announced a new plan in April: It is selling nearly all of its overseas assets to focus its business on Hawai'i and increase the parent company's stock price.

"We have a lot of (market) penetration in Hawai'i, about six out of every 10 households has a relationship with us," O'Neill said. But of those, only about 35 percent have more than one account with the bank. O'Neill thinks he can increase that number, and keep customers from leaving the bank.

• American Savings Bank also has a new CEO coming aboard in the next few weeks and has quietly been beefing up its commercial-lending business and internal operations in hopes of gaining market share and improved profitability.

Constance Lau, who has been president of American Savings for just a few months, takes over as chief executive officer from Wayne Minami, who has led the bank since 1987. She has said her goal is to make the bank a stronger competitor to Bank of Hawaii and First Hawaiian.

• Honolulu's BancWest Corp., parent company of First Hawaiian Bank, is in the middle of a $2.5 billion buyout by Paris-based BNP Paribas SA. Dods, who will continue to run BancWest from Hawai'i, said he hopes to use BNP Paribas' deep pockets to double his company's size over the next several years through acquisitions.

"We believe competition is good. It certainly is healthy for our economy," said Don Horner, vice chairman for First Hawaiian Bank.

Horner said that despite the change in ownership, no changes are planned for either the parent company or the bank in terms of its business or operating style.

Signs of competition

Recent changes in certain bank operations have already created some runoff in customers, with several local banks gaining credit card customers unhappy with Bank of Hawaii's decision to sell its card business to American Express two months ago.

Several banks began marketing campaigns to draw disgruntled customers in the wake of the sale.

First Hawaiian said recently it had signed up more than 8,000 new card customers over the past couple of months, compared with just a couple of hundred over a normal two-month period.

Dods said such shifts could mean big business for banks. When consumers move their credit card accounts, checking accounts, mortgages and other types of accounts often follow.

"We don't try to talk negatively about anyone," First Hawaiian's Horner said. "We talk about our business and let the customer make the decision."

To say Hawai'i banks see an opportunity to grow their business over the next couple of years would be an understatement. Local banks are ramping up their marketing machines, spending more money on training and adding staff, bank executives said.

"It certainly is getting more competitive. I think it's going to really be a battle for market share," said Wayne Kirihara, senior vice president for marketing and corporate development at Central Pacific Bank. "The only problem is we don't have the zillions of dollars First Hawaiian and Bank of Hawaii have to put into marketing for the battle coming up."

American Savings said its commercial lending business is up more than 75 percent in the first four months of 2001, compared to the same period a year ago.

"We are taking advantage of the economic environment and the distractions at the other banks," said Gabe Lee, American Savings' senior vice president for commercial markets. "We have had less distractions than the other banks and are confident in our ability to react quicker to changes in the market."

The thrift does not have the same kind of fee-generating capabilities of its larger rivals, and that has kept its profitability levels lower. But the company is expanding its reach into investment and insurance services with new acquisitions.

Lee said the company plans to add another three branches to its 68-branch network, second-largest in the state.

Kirihara said smaller banks will try to keep up with their bigger rivals on new products and services and even cut fees if necessary, but basically will have to rely on their small-bank, high-touch approach to appeal to customers.

The local touch

University of Hawai'i Marketing Dean Dana Alden said a high-touch, local sense is important to Hawai'i consumers — perhaps even more so than in other U.S. markets.

Bank of Hawaii is working to capitalize on that, and reverse the perception by some that as it grew its business across the Pacific from Asia to Arizona— and dropped the word "Hawaii' from the parent company's name — it lost its "local sense."

The company has announced it plans to change its name to Bank of Hawaii Corp. next year, with shareholder approval. It also is freeing hundreds of millions of dollars in capital to reinvest back in its Hawai'i business or return to shareholders, O'Neill said. O'Neill last week also said he is launching an aggressive marketing campaign — dubbed "Tell Mike" — aimed at reaching out to consumers and being more responsive to residents.

Of Hawai'i's banks, BancWest — with the pending buyout by a French bank — may be most susceptible right now to losing its perception as a local bank, Alden said.

The company has grown rapidly, more than doubling its size in just three years. More than half its business now comes from outside of Hawai'i and its owner will be based in Paris.

"It will be interesting to see what First Hawaiian's parent company does in this marketplace," Alden said. "There is a global battle going on around the world between multinational corporations and local companies over their brand identity."

First Hawaiian plans a new marketing campaign that tells consumers it is "the bank that simplifies your life."

In Hawai'i, where relationships and longstanding arrangements are sometimes as important as the bottom lines, BancWest will have to keep growing its business outside the state without losing its local feel.

"It's a challenge, but I don't think it will be a major problem," Alden said.

First Hawaiian executives agree.

Horner said that despite the change in stock ownership, nothing will change at the $19 billion bank. The company has already spent its advertising budget for the year and has no plans to change it Horner said.

"There will be no changes in personnel, policies, and more important, there will be no changes in the personality of the bank," Horner said.

O'Neill is not so sure.

"I've been involved in three mergers. People always say there will be no changes and maybe this will be the first of its kind," O'Neill said. "They (BancWest) have got their own strategy. Clearly, they are going to be spending a lot of time on the Mainland. If that distracts them, then it could open opportunities for us."

Analysts and industry leaders said that, ultimately, consumers will have to weigh the risks, costs and convenience of switching banks as the frequency and volume of bank advertising increases.

"There are going to be a lot of messages shouted out in the next few months," Kirihara said. "So we may need to work hard to get our message out."

Frank Cho can be reached by phone at 525-8088, or by e-mail at fcho@honoluluadvertiser.com