Pacific Century is planning to
eliminate 1,015 positions

Wall Street warms up to Bankoh plan
Airport company to lay off 135

By Rob Perez
Star-Bulletin

When 50 of Bank of Hawaii's best employees were asked to look for ways to make the company more efficient, no area escaped scrutiny.

Not even their own jobs.

As it turns out, some of those 50 top performers will be forced to look for other work in the company as Pacific Century Financial Corp., the bank's parent, goes through the most wrenching reorganization in its 102-year history.

The 1,015 positions that the company announced yesterday would be eliminated include some held by the 50 employees who were pulled from their regular jobs earlier this year and assigned to a team charged with evaluating reorganization ideas.

"There's a number of people who redesigned their positions right out of the company," acknowledged Richard Dahl, president of the Honolulu-based company, one of the state's largest private employers.

In its announcement yesterday, Pacific Century said 20 percent of 5,200 positions companywide would be eliminated over the next 12 months as part of a major overhaul in the way the bank does business.

About 850 of the targeted positions are in Hawaii -- roughly one in every four Bankoh jobs locally.

The cuts are expected to save the company about $43 million annually and are intended to help it meet self-imposed performance and efficiency goals.

Nearly all categories hit

Jobs will be axed in virtually all categories and range from teller to senior executive positions, bank officials said.

Asked if the cutbacks go beyond the vice president level, Chairman Lawrence Johnson said, "It goes much higher than that."

He wouldn't identify how much higher.

Bank officials said they expect the number of layoffs to total no more than 266 -- about 5 percent of the work force -- because the majority of the targeted positions are vacant or are expected to be vacated over the next year.

The 266 employees who face possible layoffs were notified yesterday afternoon.

They were advised about other employment opportunities and counseled about retraining, the bank said. If the workers don't get reassigned, layoffs would begin in mid-November -- just before the Thanksgiving and Christmas holiday season -- and extend until next September.

Johnson, however, said the bank hopes to minimize the number of layoffs, as it did when 300 positions were eliminated last year. Only 14 workers actually were laid off then, the bank said, because most others found work elsewhere within the company or voluntarily left.

Operations to be revamped

Beyond cutting positions, the bank said it intends to revamp its operations to make the company more efficient and customer- focused, moves made necessary in an increasingly competitive financial services market.

Many of the planned changes came from more than 2,000 ideas submitted by employees.

The changes, including use of new technology to speed transactions at Bankoh branches and beefed-up Internet and loan-by-phone services, are designed to provide customers with more convenience and simplicity in their banking, Dahl and Johnson said. They expect the changes to increase use of bank services, resulting in $21 million in new revenue annually.

Over the next year, for instance, the bank plans to install card-reading machines at teller stations so customers can use ATM or debit cards to quickly provide information to tellers, cutting waiting time in lines, the executives said.

PACIFIC CENTURY AT A GLANCE Pacific Century Financial Corp. is a $14.6 billion regional financial services company based in Honolulu. Here's a look at the company and the changes they are making: Principal subsidiary: Bank of Hawaii, founded in 1897, is Hawaii's largest bank. Operations: Bankoh provides traditional banking, investments, trusts, private client services, leasing, insurance and electronic-banking services in Hawaii. The parent also has major operations in Arizona, California and in Asia and throughout the South Pacific. Jobs: Under its "New Era Redesign," Pacific Century is cutting 1,015 positions, about one out of every five at the company. About 85 percent of the positions are in Hawaii. Of those cuts, 266 are likely to be layoffs while the others will be through voluntary retirement, attrition and other means, the company says. Redesign: The plan also includes offering new or improved services such as loans by phone, business banking centers, and Bankoh debit and credit cards that reward users with frequent-flier miles. The company will also buy back up to 300,000 shares of its stock per quarter beginning in the fourth quarter. Goals: The company's hopes to cut annual expenses by $43 million, generate $21 million in revenues, increase its efficiency, and boost shareholder value.

Mileage programs on tap

The bank also plans to introduce debit and credit cards that will be tied to mileage programs for any airline, Dahl said.

Pacific Century's lagging financial performance over the past several years and intense competition internationally required the $14.6 billion company to rethink the way it did business, the executives said.

Hawaii companies can no longer rely on "the good old days" when they worried little about global competition or providing good value for customers, Johnson said.

"The good old days are gone," he said.

"Today we're in a real world. And if local companies can't get out there and provide real value and be able to compete globally, they might as well get out of the game. It's just not going to work."

Analysts see big challenge

Analysts generally applauded Bankoh's plans but said top management faces significant challenges in smoothly implementing such far-reaching changes.

Although bank officials said customer services would improve, the analysts said eliminating 20 percent of positions would be tough to do without hurting service, especially given all the operational changes taking place simultaneously.

"It's definitely a risk because (the cuts) are pretty sizable," said Erika Hill, an analyst with Pacific Crest Securities in Seattle.

Joe Morford of Dain Rauscher Wessels in San Francisco said Bankoh's biggest challenge will be to maintain revenue growth while substantially cutting expenses.

Some mainland banks have gone through similar restructurings, he said, but they faltered because they resorted to old practices once financial objectives were achieved.

"This really requires a change in corporate culture," Morford said. "It does no good to do these things and then go back to the old habits."

Bankoh officials say that won't happen. The restructuring not only relies on technology to enable fewer employees to provide better service, but it will eliminate dated and inefficient practices that have been drags on performance, the executives said.

"We're going to be a much stronger institution than we were before," Johnson said.

Earnings gain expected

The bank said the redesign will add an estimated $40 million to earnings, or 49 cents a share, in the fourth quarter of next year.

It will, however, take a $23 million charge in this year's third quarter to pay for the restructuring.

The expected $21 million annual increase in revenue will come from a combination of fee increases, plus adding, eliminating and modifying services, the bank said. Some bank fees will decrease.

No branches will be closed, nor does the company intend to sell assets as part of the redesign.

But it plans to cut jobs related to maintaining company buildings and will hire an outside company to handle that service.

Johnson said a majority of the 1,015 positions being eliminated are from so-called backroom operations, those that do not involve direct dealings with customers.

Employees are relieved

Employees contacted yesterday said they were relieved they still had jobs and that the cuts wouldn't affect as many people as originally feared.

"I'm happy," said Sharleen Wegesend, a 27-year veteran of Bank of Hawaii who said she will be transferred to a new department next July.

"The company needed to do what it needed to do."

Wegesend said the bank has been offering training programs to prepare its employees with new skills for changing needs.

Although the job cuts will be mostly in Hawaii, positions are being eliminated in Bankoh's operations in the Western Pacific and Asia.

Its California and Arizona operations will not be affected, but they probably will undergo a redesign next year, Johnson said.

As a result of the changes, Bankoh's Hawaii work force is expected to shrink to roughly 2,600 positions, compared with about 3,450 now.

Bankoh's overall employee count will drop to 4,200, a 24 percent reduction from the company's peak of 5,500 in late 1997.

It's not good news for isles

Economists said Bankoh's news wasn't good for a state that has lost jobs each of the past several years.

Jim Mak, University of Hawaii economics professor, said the cuts when compared with Hawaii's overall job count are not large.

"But (because) they're coming from Bank of Hawaii, which is a stable and highly visible company, it is disconcerting to a lot of people," he said.

UH economist Carl Bonham said he doesn't believe the cuts will have a ripple effect on the economy and local spending patterns.

"I don't see this severely worsening consumer confidence in Hawaii," Bonham said.

In a period of no job growth, however, this isn't a good time for people to be looking for work, he said.

Bankoh's Dahl said the cuts were driven by improving the bank's performance, not by who held what positions. "The redesign didn't care who you were, it looked at the process that was being done."

Dahl said he expects the top performers whose positions are being eliminated to find new jobs within the company. But they'll have to apply for those positions.

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Star-Bulletin reporters Rick Daysog and
Peter Wagner contributed to this report.