The drop is triggered by newsBy Rick Daysog
that Pacific Century will take a large
charge on troubled loans
Investors hammered the stock of Bank of Hawaii's parent after the company reported that troubled loans will wipe out most of its profit for the second quarter.
Pacific Century Financial Corp. announced last night that it was taking a $55 million to $65 million hit to cover loan losses and to shore up reserves for future nonperforming loans.
The company said it will report nominal earnings for the second quarter, prompting Pacific Century's stock to fall $3.56, or about 18 percent, to close this morning at $16.25 in heavy trading on the New York Stock Exchange. Earlier in the day, the stock was down as low as $15.06.
"We were concerned about their exposure but the actual extent of that exposure was somewhat of a surprise," said Joseph Morford, banking analyst at Daine Rauscher Wessels in San Francisco.
"This is a market where investors have no mercy for asset-quality problems."
With today's drop, the stock is down 13 percent for the year and 25.5 percent from a year ago.
The development comes as Pacific Century's earnings have been improving, due to the rebounding Hawaii economy and a gut-wrenching re-engineering program that will eliminate about 1,000 positions and save $43 million a year.
The company said the latest moves are prudent in light of its troubled loans.
"The disappointing aspect of this action is that it overshadows the tangible benefits which have resulted from steps taken to improve our long-term performance and the positive trends in Hawaii's economy," said Lawrence Johnson, Pacific Century's chairman and chief executive officer.
"We view our response as pragmatic and appropriate, given the circumstances at hand."
The company said that much of its troubled loans are outside of Hawaii.
Pacific Century said it will take a $5.1 million charge and will increase its loss reserve by $10 million as a result of the political and economic turmoil in Fiji, where the company operates three branches.
Pacific Century also will take a $6 million charge from two syndicated mainland loans.
As for its Hawaii operations, Pacific Century said it will charge off about $8.5 million to cover three troubled commercial loans.
The company did not identify the names of the borrowers.
About $25 million to $35 million of the loss provisions will cover loans that are expected to be classified as nonperforming at the end of the quarter.
Prior to last night's announcement, analysts had forecast earnings of 51 cents a share for the second quarter.
Jacqueline Reeves, an analyst at Putnam, Lovell, de Guardiola & Thornton, said today she has cut her estimate to about 5 cents a share, according to Bloomberg News.