Monday, April 23, 2001

cutting back its
off-island operations

Jobs: The parent company of Bank of Hawaii
will cut its payroll by 1,000
Assets: The retrenching will reduce
the company's assets by $5 billion
Holdings: It will sell its operations in
California, Asia and the South Pacific

Parent firm's net falls

By Rick Daysog

The parent of Bank of Hawaii announced today that it will sell off nearly all of its non-Hawaii operations in move that will cut its payroll by more than 1,000 employees and reduce its assets by $5 billion.

Pacific Century Financial Corp. said it will sell Encino, Calif.-based Pacific Century Bank N.A., which operates 19 locations in Southern California, as well as 10 branches and 29 retail locations throughout Asia and the South Pacific.

The company also will change its name to Bank of Hawaii Corp. next year, pending regulatory approval.

The moves, which will likely be completed by year's end, will affect 1,000 employees but the company said it anticipates many of the workers will be retained by the new owners.

"The decision to divest, while necessary, was difficult since the company has served these regions for many years and has strong historical ties," said Michael O'Neill, Pacific Century's chairman and chief executive officer. "The new strategy focuses on building on strengths in the company's core markets."

Today's announcement is the result of an extensive four-month strategic assessment unveiled by O'Neill. Under the plan, Pacific Century will refocus on its core Hawaii market, improve its efficiencies and significantly reduce its size.

By 2003, the company said, its assets would total about $9 billion, compared to $14 billion currently. Pacific Century said it expects its payroll to shrink from 4,166 to 3,070 in the next three years due largely to the planned sales.

Under the divestiture plan, the company will sell all 19 of its Southern California branches by the end of the year. Pacific Century acquired the branches in 1997 when it purchased California United Bank but was never able to grow the business to the point where it paid off.

In Asia and the South Pacific, the bank said it will sell all but its operations in American Samoa, Tokyo and Guam. Those assets include 10 Bank of Hawaii branches, 29 retail bank locations, 11 affiliated bank branches and three representative offices in 14 different countries and territories.

"Our ability to manage this far-flung network has been tested," O'Neill said. "We have concluded that the complexity and cost of managing the business, together with the volatility inherent in it, made it impossible to justify retaining the business."

O'Neill said the bank has not lined up a buyer yet but has received a number of unsolicited inquiries for the California operations. He declined to identify the companies but Brian Harvey, an analyst with Fox-Pitt Kelton, told Bloomberg News that rival BancWest Corp. might be interested in the California branches. O'Neill also couldn't say how much the properties would sell for but said the bank is likely to break even while freeing up about $400 million in capital to invest elsewhere.

The planned sales are the latest in a string of divestitures announced by the bank since O'Neill took the helm in November with the retirement of Lawrence Johnson.

The bank recently completed the sale of its credit card unit to American Express Century Bank, in a deal valued at about $70 million. The company also is selling its nine Arizona branches to Utah-based Zions Bancorporation for $24 million.

"I think it's a very credible plan and there's significant upside to earnings," said Joe Morford, analyst with Dain Rauscher Wessels in San Francisco.

Bob Patten, a senior bank analysts with UBS Warburg, told Reuters News Service the moves not only will improve earnings but will make it attractive for a sale, citing U.S. Bancorp and Wells Fargo and Co. as potential suitors.

However, O'Neill said the bank today is much more difficult to sell, given that its stock has nearly doubled to about $22 a share from a near 10-year low of $11 in November.

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