Feuding banks trade more
accusations about mergerCB Bancshares argues to a regulator,
while CPF calls a new meeting
The no-holds-barred Hawaii bank war took on several legal twists yesterday as the two institutions fortified their positions.
CB Bancshares Inc., citing issues including its rival's subpar lending rating, asked the Hawaii Commissioner of Financial Institutions to reject Central Pacific Financial's Corp.'s merger application.
Central Pacific, meanwhile, called its own meeting for CB Bancshares shareholders and sent a letter to CB President and Chief Executive Officer Ronald Migita expressing its disappointment that the parent of City Bank rejected CPF's new offer.
The parent of Central Pacific bank said shareholders owning 1.1 million shares, or 27 percent of CB stock, have called a meeting for 11 a.m. June 26 at Hilton Hawaiian Village.
CPF also urged CB directors to cancel the May 28 shareholders meeting to avoid confusion.
CB Bancshares, which Friday issued comments to the state Commissioner of Financial Institutions regarding the proposed merger, revealed yesterday the four concerns it expressed to the state agency. CPF responded with a point-by-point rebuttal.
Among CB's concerns:
>> A possible antitrust violation that will result in reduced competition. "CB Bancshares believes that the proposed hostile takeover will significantly reduce competition because City Bank is Central Pacific's closest rival for Hawaii's small- and medium-sized business and retail customers," CB said.
CB also said the proposed takeover would raise market concentrations above thresholds for competitive concerns and possibly be challenged by state and federal antitrust authorities.
CPF said the new bank would be the fourth-largest financial institution in Hawaii, far from the market leader, but in a better position to provide stronger competition. CPF also said overlapping market coverage will afford opportunities to reallocate resources and expand into markets currently not being served by either bank.
>> Not serving the convenience and needs of Hawaii communities. CB said it has a "legacy of commitment" to serving the state's underserved communities as demonstrated by its Community Reinvestment Act lending rating of "high satisfactory" and that CPF's lending rating of "low satisfactory" is the lowest lending rating among Hawaii's commercial banks.
CPF said its ratings indicate it is "absolutely committed" to serving the needs of Hawaii. Although CPF admitted today it has a "low satisfactory" rating for lending, it said it has "outstanding" ratings for investment and service, as well as an overall "satisfactory" rating, the same as CB's overall rating.
CB, in addition to its "high satisfactory" rating for lending, has a "high satisfactory" rating for service and a "low satisfactory" rating for investment.
An error in a chart on the CRA Web site created some initial confusion at CPF yesterday, but an accompanying August 2002 report revealed the chart was wrong.
>> Potential for significant reduction in CPF's capital levels. CB said CPF's takeover has the potential to "substantially reduce" CPF's capital below the levels projected by CPF in its public disclosure and that significantly more capital could be required to complete the merger.
CPF said both it and CB have excess capital and that their capital ratios are in excess of the regulatory "well capitalized minimum" standard. CPF said the combined bank would continue to be well capitalized.
>> Perceived lack of managerial expertise. CB said Clint Arnoldus, the chairman, president and CEO of CPF, has not previously managed a public company and that his senior management team has "no relevant experience" overseeing the combination and integration of two public banking institutions.
CPF said its management has delivered more than five years of superior financial performance and that Arnoldus has direct experience in two prior acquisitions and consolidations of banks comparable to this transaction. CPF said key members of its senior management team have experience with Bank of Hawaii's acquisition of First Federal Savings and Loan.
Meanwhile, CPF said it is eliminating technical legal issues raised by CB about the eligibility of Ton Finance B.V.'s votes to count in any special shareholders meeting. CPF said it has released Ton, CB's largest shareholder with an 8.9 percent stake, from its voting obligations.
"To avoid shareholder confusion, we again urge CBBI directors and management to cancel the May 28 meeting at which there is no longer any business to consider," CPF said. "If they do not, we urge CBBI shareholders not to vote at the May 28 meeting -- to send a clear message to CBBI's board that its decision to effectively disenfranchise a large segment of CBBI's shareholder base is unacceptable."
CPF said the June 26 meeting will enable CB shareholders to consider the terms of CPF's new exchange offer. That offer would give CB shareholders $24.50 in cash plus 1.7606 shares of CPF stock for each share of CB stock, a value of $70.24 per CB share based on CPF's closing price yesterday.
In the letter to CB's Migita, CPF questioned CB's rationale for rejecting the merger and why it refuses to change the May 28 meeting date, as well as why the company considered the offer inadequate.
Lynne Himeda, acting commissioner of the Commissioner of Financial Institutions, said her agency will now have until May 18 -- 20 days from CPF's April 28 application date -- to study the application and CB's comments.
She said the agency would ask for more information from CPF if needed.
"We don't have very many financial institutions (in Hawaii) so we don't get a lot of transactions," Himeda said. "In some states, there are hundreds of banks, but we don't get a lot of merger applications. We're still reviewing all the filings that have been made by both parties.
"If we do need more information, we'll have to wait for them to respond and then review that information. It's an ongoing process and we're at the preliminary stage."