State approves CPB's takeover of City Bank

By Deborah Adamson and Debbie Sokei
Advertiser Staff Writers

The state approved Central Pacific Bank's hostile bid to take over cross-town rival City Bank.

The decision, announced yesterday by state Commissioner of Financial Institutions Nick Griffin, was the final regulatory hurdle for the bank merger. The takeover now needs the approval of shareholders of both companies and the courts to go forward.

The ruling was a victory for Clint Arnoldus, who took over Central Pacific Financial Corp. less than two years ago and was accused by many of not following the Hawai'i way of doing business when he pushed for the merger over the objections of the City Bank board.

"It's not in the aloha spirit," said Herman Aizawa, a former state superintendent for schools and friend of Ron Migita, president and CEO of City Bank parent CB Bancshares. "They want to make a profit and are doing things within the law. But the whole process of trying to force yourself is not something we are used to in Hawai'i."

Griffin ruled in favor of Central Pacific, despite a public relations blitz by City Bank that included two days of emotional public testimony, newspaper ads and sign-waving in front of the state capitol. City Bank argued that the merger would hurt the community by reducing competition, and would result in branch closings and layoffs.

The commissioner said that after a careful and thorough review, he found no grounds for rejecting the $300 million proposed transaction.

"We analyzed the application in accordance with the state statute, and concluded there's no reason it shouldn't go forward," Griffin said in a statement. "Everything in the application was considered."

City Bank executives did not return calls seeking comment. City Bank cannot appeal the state's decision, but it can continue to fight the takeover in the courts and through appeals to shareholders.

Arnoldus said in a statement: "We continue to believe that combining the best of both our banks will create a stronger Hawai'i-based bank ... We hope that now we have received all required regulatory approvals, CB Bancshares' board and management will be willing to discuss the proposed combination of our two banks."

Central Pacific believes a stronger, bigger local bank would have the resources to expand services and add to the diversity of products, as well as defend against acquisition attempts by Mainland competitors.

Combined, the two banks would become the fourth-largest financial institution in Hawai'i, after Bank of Hawai'i, First Hawaiian Bank and American Savings Bank.

Central Pacific's hostile bid, only the second of its kind in state history, generated much opposition from Hawai'i residents who favor a less aggressive business approach.

Charles Wheatley, a retired Waipahu resident, said he would close his accounts at City Bank if Central Pacific takes it over, and transfer to a credit union. "The ruling is very anti-consumer," Wheatley said. "This is a hostile takeover. Do you know what hostile means?"

Shareholder approval is the remaining hurdle. Under state law, Hawai'i companies incorporated before 1987 need approval of nearly three-quarters of shareholders.

And while some Hawai'i investors might vote against the takeover, more than half of the outstanding shares of each bank are owned by institutional investors.

Private Capital Management, City Bank's largest shareholder at 10 percent ownership, indicated it wants the merger to go forward. Private Capital Management is also a major shareholder of Central Pacific.

City Bank has a "poison pill" defense, which makes it more difficult for an unwelcome suitor to take over by flooding the market with its shares. Central Pacific has filed a lawsuit to prevent City Bank from using that defense, and the ruling is pending.

"City Bank's recourse is through the judicial system," said state spokesman Bill Brennan. "They're through with the regulatory end."

Even if Central Pacific does prevail, it is faced with the daunting task of winning over depositors and repairing the company's public image. The bank will have to convince customers that the merger will not hurt quality of service.

"We liked the service at City Bank, and they were always very helpful," said Patricia Yonemura, a Kane'ohe resident. "We got individualized attention. That may disappear."

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088 and Debbie Sokei at dsokei@honoluluadvertiser.com or 525-8064.