Bankoh will lay off 250
By John Duchemin
Advertiser Staff Writer
Bank of Hawaii Corp. will lay off about 250 employees over the next year as it outsources its main computer system to a Mainland company, the latest in a series of moves to improve the bank's financial results.
Milwaukee-based Metavante Corp. is scheduled to take over computer systems that process the bank's loans, deposits and other transactions by the end of 2003, the 3,000-employee bank said yesterday. Metavante will also maintain the bank's Internet site.
Analysts and bank officials said the outsourcing should help increase profits at the $10 billion bank, which has engaged in a massive restructuring and sell-off of assets but yesterday reported reduced earnings from its core ongoing businesses.
"We're using our assets much more efficiently ... (but) our efficiency is not nearly where I would like it to be, and we're looking for ways to improve," said Michael O'Neill, Bank of Hawaii president, chief executive and chairman, in an interview. "This contract is an example of those ways."
Bank of Hawaii net income was $31 million in the three months ending June 30, up 16 percent from an unusually low $26.7 million in the same quarter last year. Earnings per share were 42 cents, compared to 32 cents per share the year earlier.
But that growth was from a second-quarter 2001, when earnings were depressed because of millions of dollars in one-time charges. When "continuing operations" are compared, the bank's net income for the second quarter of this year was down 4.9 percent.
O'Neill blamed the poor post-Sept. 11 economy for the decline, but said the bank's ability to weather challenging times has improved because of its restructuring.
Since O'Neill was hired in late 2000, the bank has shed more than 1,000 employees, trimmed assets by $4 billion and sold operations and investments in Asia, the south and west Pacific, Australia and the U.S. Mainland. Bank of Hawaii's credit quality improved as bad loans and other nonperforming assets dropped from $118 million last year to $78.8 million as of June 30. Return on assets, an important indicator of bank profitability, increased to 1.23 percent from 0.83 percent last year.
Analysts agreed that the bank's strategic position has improved since O'Neill in 2001 began a campaign to streamline the bank's portfolio, and that O'Neill's management team has largely eliminated credit troubles that dogged the bank for years and drew the scrutiny of federal regulators. But Portland-based analyst Jim Bradshaw of D.A. Davidson said the bank needs to concentrate on improving its core results now that the troubles are past.
"They've made good solid progress; I'd say unquestionably they had the most optimistic earnings conference call I've heard of the two or three dozen we've listened to this quarter," Bradshaw said. "Clearly, the heavy lifting of the past is done, so now they need to concentrate on getting better day-to-day results, rather than getting rid of large buckets of assets."
The restructuring continues with the Metavante contract, which will cost the jobs of more than 40 percent of the bank's 620-person operations and information technology staff. The average salary of the workers to be laid off is $40,000 per year, said Gretchen Mohen, Bank of Hawaii vice chairwoman for technology and operations.
Mohen said the bank's internal mainframe computer system was gradually falling behind the times, and going with Metavante will help the bank keep up with its competitors. Metavante will take over the hardware and software development and maintenance, including the bank's Internet site. Bank of Hawaii will retain employees who focus more on the customer experience, Mohen said.
"One of the things that drove us down this path is that, in the local market, we're the last ones to do this," she said. "First Hawaiian Bank, American Savings and CPB (Central Pacific) have all done this, and it's becoming much more prevalent as banks focus on the technology benefiting the customer, rather than the technology that processes transactions."
Metavante has more than 5,100 clients, including the nation's 20 largest banks.
The move also means Bank of Hawaii will have a surplus of space in its two Hawai'i data centers, one on Dillingham Boulevard and the other in Kapolei. The bank is still deciding what to do with the centers, Mohen said.
The bank's total assets were $9.8 billion as of June 30, down from $12.8 billion last year. Net loans were $5.2 billion, down from $6.6 billion, while deposits of $6.5 billion were down from $7.4 billion last year.
O'Neill said the large declines were almost entirely because of the sell of assets, including operations and investments outside of Hawai'i.
The bank expects earnings of $120 million for the year, but O'Neill said profits could be dampened by the recent declines in the stock market, which will lower income for the bank's trust division.
Also lowering future earnings, O'Neill said, will be $35 million in charges related to the bank's outsourcing to Metavante. Those charges, which include about $6 million in severance payments, will be spread over five quarters.
