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S&P lowers
Bankoh’s ratings

Parent firm Pacific Century's
big loan losses prompt
the credit downgrade

By Tim Ruel
Star-Bulletin

Standard & Poor's downgraded several credits ratings one notch for Bank of Hawaii after its parent company reported troubled loans would erase most of its second-quarter profits.

The international credit rating agency also lowered a long-term rating on Bankoh's affiliate, Bancorp Hawaii Capital Trust I, as well as their parent, Pacific Century Financial Corp. It did not change Bankoh's short-term credit ratings. Lower ratings usually mean higher borrowing costs for the company.

S&P said yesterday's downgrades followed Pacific Century's announcement late Tuesday that the company will use $55 million to $65 million to cover bad loans and stock up reserves for future nonperforming loans.

Moody's Investors Service, meanwhile, affirmed its rating on the company's debt today but changed its outlook to "negative" from "stable".

"I think this just reflects the latest development on the credit quality front," said Joseph Morford, banking analyst with Daine Rauscher Wessels in San Francisco.

The company's stock, which sank 18 percent on Wednesday, fell 19 cents today to close at $15.81 on the New York Stock Exchange. S&P's downgrade came after the market closed yesterday. The stock is down about 16 percent so far this year.

Pacific Century said Tuesday it will take a $5.1 million charge and increase its loss reserve by $10 million because of the recent coup in Fiji, where the bank-holding company operates three branches. Pacific Century also will take a $6 million charge from two syndicated mainland loans, and $8.5 million from three unidentified commercial loans in Hawaii.

S&P said the recent loan developments would likely affect near- to intermediate-term profits for Pacific Century. It also said Pacific Century's geographic markets tend to go through volatile growth patterns. However, the agency added that Pacific Century has always kept its loan loss reserves at strong levels, and has had success in managing credit quality.

"While the rating change is a disappointment, we were pleased that S&P acknowledged our historical success with managing credit quality through cyclical downturns, and recognized our strong capital and loan loss reserve levels," Chief Financial Officer David Houle said yesterday.

Pacific Century's earnings had been improving from rising economic activity in Hawaii and a massive reorganization that will eliminate about 1,000 positions and save $43 million a year.

Pacific Century had about $14.3 billion in assets as of March 30.