BOH outsources system
By Deborah Adamson
Advertiser Staff Writer
As part of a restructuring plan to boost efficiency and profits, Bank of Hawaii will be switching over its technology operations to an outside firm during the July 4th weekend to save $17 million a year.
The state's largest bank began mailing out notices to its customers about the switchover more than a week ago, saying it will work hard to make the transition "easy."
"For most customers, they won't see a lot of change," said Stafford Kiguchi, a spokesman for Bankoh, a subsidiary of Pacific Century Financial Corp.
But some account numbers would change, and customers would need to reset their personal identification numbers if they bank by phone, he said.
Also, nearly 1,000 accounts in the bank's fixed-rate home equity lines of credit business would see higher one-time interest as a result of a change in the billing cycle, said Jim Hawkins, executive vice president for consumer lending. But overall, consumers would not be paying more for interest, he said.
Bankoh will be sending out a notification to affected customers.
Checking and savings account numbers would remain the same and there will be no need to switch ATM or credit cards. The system would be offline for a few hours in the middle of the night on an as-yet unspecified date, the bank said.
"Banks go out of their way to make it seamless," said Linda Sherry, editorial director of Consumer Action, a San Francisco-based advocacy group that specializes in banking issues. "We haven't really seen a big problem with this."
Last year, Bankoh said it would outsource the processing of bank loans, deposits and other transactions to Milwaukee-based Metavante, a unit of Marshall & Ilsley. Bankoh would charge the $35 million expense over five quarters.
"Most banks of their size use third-party services," said Campbell Chaney, a bank analyst at Sanders Morris Harris in San Francisco. "They have a proprietary system to manage and operate. It's very expensive and you don't get economies of scale."
The deal with Metavante means Bankoh would recoup its expense in about two years, he said.
The move is one piece of the company's realignment plan. Since Michael O'Neill, Pacific Century's chairman and chief executive, took over in late 2000, the bank has cut more than 1,000 jobs and shed more than $4 billion in assets in an effort to focus on its core business — the Hawai'i market.
Bankoh has been trying to clean up its failed strategy of the mid-1990s, Chaney said. Back then, the previous management decided to focus on expanding in the Pacific Rim. But their plan had its flaws — they either expanded in low-growth areas such as New Caledonia or Micronesia, or they never gained much of market share in faster-growing economies such as Hong Kong and California, he said.
O'Neill, a former Bank of America executive, has brought Bankoh back to its main Hawaiian market. Bankoh has sold its operations in California, Australia, Hong Kong and Japan, Chaney said.
To boost profits, Bankoh also has been buying back its own stock. A buyback shrinks the amount of stock by which earnings are divided, leading to a higher profit per share. Since O'Neill took over, Bankoh shares have nearly tripled.
But Chaney recently downgraded the stock to "hold" from "buy" because he feels the shares are fully valued. The stock is trading at14 times his 2004 earnings estimates and in line with its peers, he said.
Reach Deborah Adamson at 525-8088 or dadamson@honoluluadvertiser.com.
