LEADERSHIP CORNER
Bank of Hawaii chairman has no problem with 'healthy competition'
Interviewed by David Butts
Advertiser Staff Writer
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Age: 56
Title: Chairman, CEO and president
Company: Bank of Hawaii
High School: Ascension Academy, Alexandria, Va.
College: Princeton
Breakthrough job: Continental Bank in 1982 assigned O'Neill to work out the bank's troubled shipping portfolio.
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Q: If Central Pacific Bank and City Bank do combine, will they become a tougher competitor for you?
A: Today City Bank is the fifth largest bank in the state and Central Pacific is the fourth largest bank in the state. When all the dust settles here, assuming they get together — which from reading the press, it is not a certainty — they will be the fourth largest bank in the state. So, will they be a more serious competitor? I guess it all depends on how effectively the two institutions would be integrated. It's not always a slam dunk.
I have no problem with healthy competition here. We've got some able competitors. They are going to continue to work very hard. At the end of the day it's all about execution. Do we bring more to the party? Are our people capable? Do we listen? And that's where we will try and distinguish ourselves.
Q: Your share price was about $11 when you joined in late 2000. Last week it was at an all-time high of about $35 and you are heading for $131 million in net income this year. Is your turnaround of this bank complete?
A: I've been in this business long enough to know that you can always do better. I'm gratified with the improvements and Wall Street's reaction to those improvements, but I'm not satisfied that we can't do better. We still have one more significant milestone, obstacle to clear, and that is the systems replacement project.
You never declare victory in this business because there are always things that come up and bite you, but I am very pleased with the progress today.
Q: When you came on the bank was spreading over the Pacific, had problem loans, a low share price and low morale. What was the key to turning it around?
A: An overriding philosophy that I learned in the Marine Corps is the KISS principle — Keep It Simple Stupid. Try to boil your business down to its essentials. Figure out where you make money. Figure out where you've got distinctive competence. And then go hell bent for leather down that railroad track and try to avoid as many distractions as possible.
So our whole strategy first of all was: Step 1, fix our loan problem, which is what kills banks. No. 2, look at all of our businesses and decide where we had an advantage and where we were not advantaged. And those that we couldn't fix, sell or close. That was an important step. And then Step 3 was to improve the way we operated the business that was left. That turned out to be — surprise, surprise — the business closest to home where we had a very strong position and historically a very favorable image that had been tarnished by some of the difficulties that we had.
Q: What was wrong with the strategy of expanding into other markets?
A: First of all we are a long way from anywhere else so that strains, just like in the military, straining supply lines. It strains your ability to manage. It strains the financial resources.
To be fair, no one predicted that the expansion into Asia would be done in an environment where Asia all of a sudden declined quite seriously. I don't want to suggest for a minute that prior management didn't know what it was doing. At the time when Hawai'i was doing poorly and Asia was doing so well, there was a certain logic in doing what management did.
The syndicated loan business that they had gone into on the Mainland really was problematic. We had not made good lending decisions.
There are not a lot of companies in Hawai'i that have successfully expanded outside Hawai'i. Before you do that, be careful.
Q: What effect did the turnaround have on employees? How many did you have when you started compared to the nearly 3,000 you have now?
A: We had about 4,000 employees. But remember approximately 1,000 of them were related to the operations that we sold, not in Hawai'i. The impact on Hawai'i has been principally from the system replacement project, which we are in the midst of. We announced at one point that it would lead to losses of about 250 (employees). My guess is when the dust is settled and we are all done the number will be well under 200.
Q: You've been criticized for hiring Mainland managers to replace local ones. How do you respond?
A: The results are clear. The choices of people that we've made, I think, on balance have proven to be quite correct and business has improved.
There are two things that matter to me. There is administrative ability, how do you run a bank, and then secondly, relationships. In a perfect world you get an individual with both. Now let us face the facts: the bank was not doing very well and it needed some immediate attention and it needed attention from people that had done this kind of work before. This work is a very specialized kind of work. We brought in lending specialists. We brought in workout specialists. And frankly we brought in people that applied a more rigorous risk management model. We needed someone that had done this kind of system conversion.
Q: Does that apply to you, too? You came from investment banking in London to retail banking in Hawai'i. Don't you want to go back to the big leagues once this turnaround is finished?
A: I'm perfectly happy doing this kind of work here. My family likes Hawai'i. I've tried very hard to get integrated into the community, I think, with some success. Yeah, I'm happy doing this indefinitely.
Q: Now that the bank is stronger and you need to continue to grow, is there a possibility that you will try to expand outside of Hawai'i again?
A: I guess there is a possibility, but we still have some shortcomings here. We are going to get our growth by focusing on the clients that we've got ... and doing a better job of analyzing what they need and selling them what they need.
Q: Is there a difference between doing business in Hawai'i and elsewhere?
A: Every place is different in that you need to understand what motivates your customers, what's important, and then you try to provide products and services that speak to their need. So you can't take the cookie-cutter approach. That's a difficult thing to learn when you come into a market. Having said that the basic business fundamentals are kind of the same everywhere.
