First Hawaiian
merger to be
less costly

The bank's stock soars
more than $2 after a positive
earnings forecast and an
upgrade by analysts

By Russ Lynch
Star-Bulletin

First Hawaiian Inc.'s shares got a 6.6 percent boost today from an announcement that the cost of its planned acquisition of a West Coast bank will not cut into its earnings as much as expected.

The stock's $2.13 climb to $34.13 on Wall Street also was helped by a report from two analysts upgrading their recommendation on First Hawaiian to "buy" from "hold."

San Francisco-based Van Kasper & Co. said it upgraded First Hawaiian after yesterday's announcement of a reduction in expected amortization costs from the planned acquisition of BancWest Corp. and its merger with First Hawaiian Inc. to form a new, $14 billion BancWest, based in Honolulu.

Walter A. Dods Jr., First Hawaiian's chairman and chief executive officer, said accounting for goodwill -- the amount by which the value of the acquisition exceed's BancWest's book value -- will reduce earnings by 1 percent next year. At the time the merger plan was announced in late May, the costs had been expected to cut profits by 7.8 percent next year.

The new projection, based on the fact that First Hawaiian has recently been trading at lower prices than it was in the spring, now calls for a 9.9 percent profit increase in 2000, better than the previously anticipated 3.9 percent increase.

The goodwill charge is now expected to be $20.1 million a year, 30 percent below the $28.8 million originally estimated.

Dods also announced that a major regulatory approval for the merger has been received from the Federal Reserve, leaving only required approvals of the Federal Deposit Insurance Corp. and state regulators in Hawaii, California and Oregon. The merger is expected to be completed by the end of October, he said.

Dods has said the bank's cash earnings, excluding the noncash accounting for the goodwill amortization, are expected to increase by 7.8 percent in 1999 and by 17.6 percent in 2000.

First Hawaiian will give 25.9 million of its shares to BancWest's parent, Banque Nationale de Paris, in exchange for full ownership of BancWest. Dods will be chairman and chief executive of the new BancWest Corp., heading a board of directors of 11 members picked by current First Hawaiian shareholders and nine from BNP.

The branches will operate as First Hawaiian Bank in the islands and Bank of the West on the mainland.

"By buying Bank of the West, First Hawaiian should significantly improve its growth rate and profitability," said today's report by analysts Joseph K. Morford III and Jeffrey T. Runnfeldt.

They also said First Hawaiian's shares are trading at only 10 percent above book value, low for banks, and the exposure of the combined banks to troubled Asian economies is slight.

Less than 1 percent of the assets of First Hawaiian and BancWest are in loans to Asian borrowers and they are secured by Hawaii real estate or cash, the analysts said.

At the time the merger plan was announced in late May, First Hawaiian's shares were trading at nearly $37. Based on trading in the period before the May 28 merger announced, First Hawaiian had estimated the value of the transaction at about $1 billion. At today's prices, it is about $880 million.

First Hawaiian's shares hit a 52-week low of $28 on Aug. 27, according to Bloomberg News.