Tuesday, April 24, 2001

comes home

Pacific Century leaves
expansion behind to
focus on Hawaii

By Rick Daysog

The name change says it all.

Pacific Century Financial Corp.'s announcement that it will rename itself the Bank of Hawaii Corp. and sell its California and Pacific Rim operations represents a fundamental shift in how the $14 billion financial institution will conduct business.

Bank of Hawaii The plan, part of a comprehensive four-month strategic review by Chief Executive Officer Michael O'Neill, will unravel two decades of investing beyond Hawaii's shores, eliminate more than 1,000 jobs outside Hawaii and knock off more than $5 billion in assets.

It also will refocus the bank on its core Hawaii market, which already contributes the bulk of the company's income.

"Hawaii is our home and it is our largest and most profitable market and it is there we will concentrate our investments," O'Neill told analysts in a conference call yesterday.

O'Neill was candid in his assessment of past management's attempt to diversify from outside of Hawaii, saying the strategy added more risk instead of protecting against it.

The South Pacific and Asia market has been volatile economically and the operations there have been difficult to manage, he said. The bank is selling all but the company's American Samoa branches and its Tokyo offices.

The company also is selling its 19 branches in Encino, Calif.-based Pacific Century Bank N.A..

"They got too far flung and they got hit with every crisis possible," said Ken Ritz, director with Fitch Ratings in New York.

The sales are expected to be completed next year, although O'Neill conceded the bank may not find a buyer for its five Asia branches and may have to close those operations.

Overall, the divestitures are expected to free about $800 million in capital and some of that could be used for the buyback of company stock.

O'Neill detailed some of the plans that the bank has for its local operations, saying the company wants to leverage its already powerful presence in the isles, with a local economy predicted to grow at a 2.5 percent to 3.5 percent rate over the next few years.

He said the bank currently has a business relationship with six of every 10 households in Hawaii either in the form of a mortgage, a car loan, a checking account or a savings account. However, a majority those Bank of Hawaii households are customers on just one bank service, indicating a potential for growth, he said.

The bank's residential real estate lenders will now sell many of the new loans it originates while retaining the loan's servicing duties, he said.

O'Neill said he sees even more opportunity on business banking end. The bank's share of the small business segment is just 31 percent and most of those Bankoh business customers rely on one service.

"In my judgment, the single largest opportunity we have is in business banking and the small business segment," O'Neill said.

Local businesses were generally positive about Pacific Century's announcement. Carol Pregill, executive director of the 220-member Retail Merchants of Hawaii, said the renewed focus on the business lending sector will stir up a lot of activity from competitors.

"The golden rule is that competition is good," she said.

Tim Moore, partner in Old Lahaina Luau on Maui, believes the changes are too little and too late. Moore believes managers at the Bank of Hawaii and other local lenders have a strong resistance toward lending to small businesses in this state, especially those in the restaurant or tourism sectors.

Until 1997, Moore said, he was a Bank of Hawaii business customer but decided to switch to rival First Hawaiian Bank after he faced difficulties in getting a loan. "A lot of us have learned to survive without them," Moore said. "I don't think we will be rushing back."

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