Bankoh chief
removed from
Seattle bank

Allan Landon denies wrongdoing,
but agrees to resign from the
board of a Seattle cooperative

Bank of Hawaii Corp. Chief Executive Allan Landon agreed to resign from the board of the Federal Home Loan Bank of Seattle after a five-month review determined Bankoh improperly sold back $25.4 million of stock it owned in the regional cooperative.

Allan Landon: Bank of Hawaii leader disagrees with the findings of an independent review

An independent committee found there was an appearance of impropriety when Bankoh in October sold stock back to the Seattle bank and that Landon failed to comply with a conflict-of-interest rule requiring disclosure to the board when a director's bank is planning to sell back shares. The redemption of shares occurred a month after the struggling Seattle bank announced a quarterly dividend cut and two months before it suspended redemptions. A complaint from a bank member prompted the investigation.

Landon, who denied any wrongdoing and disagreed with the findings, said he had no knowledge that a suspension was going to be implemented when he decided to sell back excess shares that Bankoh owned of the Seattle bank.

However, Landon agreed to return the $25.4 million Bankoh got from the stock sale, as part of a settlement that included giving up his board position.

The committee also found that Roy Whitehead, chairman and CEO of Washington Federal Savings, committed the same violations. Whitehead also was asked to resign and return $48 million from stock that had been redeemed.

The Seattle bank's board, in announcing the settlement, said the actions of Landon and Whitehead were undertaken without a motivation to harm anyone and with the intention of benefiting the Seattle bank by returning more shares to it.

"(Bank of Hawaii has) been focused on improving our financial performance and maximizing our income and return for shareholders," Landon said. "When the Seattle bank announced in September that it was going to be reducing its dividend in the future and it expected its income in the future to go down, our people ran their normal analysis on our investment and concluded that it was not going to continue to meet our profitability targets."

The Seattle bank is one of 12 Federal Home Loan Banks that are part of a cooperative system to promote homeownership and to loan money to thrifts, credit unions, insurance companies and commercial banks at below-market rates.

To belong to the cooperative, financial institutions have to buy stock in the bank, depending on the institution's size and the amount of business done with the bank. Bankoh sold stock in the Seattle bank that was in excess of minimum requirements.

Unlike shares that are traded in the stock market, the value of the Seattle bank's stock doesn't change so there's no benefit by selling ahead of a dividend cut. The Seattle bank announced in September it would pay a 3.5 percent annualized dividend for the third quarter, down from 5.25 percent a year earlier. Following the announcement, Bank of Hawaii sold the stock in October.

Landon said Bankoh made the decision to sell the shares because of the Seattle bank's future projections.

"Over the last several years, our size has decreased at the Bank of Hawaii and the amount of borrowing business we do with them has decreased as well," he said. "As a consequence, we had what you call excess stock."

The Seattle bank later reduced its fourth-quarter dividend to 1.6 percent.

The independent review focused on the timing of share redemptions before the Seattle bank decided on Dec. 10 to suspend redemptions.

"Given what I knew in October, could I have anticipated the December suspension of redemptions?" Landon asked. "I think the member questioned whether there was some way I knew something we used in the redemptions that other members did not know. But I didn't know anything and I didn't think it was reasonable to suspect I would know anything or anticipate anything."

As a result of the October repurchases, the Seattle bank's board has enhanced its policies covering stock repurchases by member institutions that have a representative on the bank's board.

In February, the Seattle bank board adopted a policy requiring that until the Federal Housing Finance Board approves the bank's three-year business plan, any request for stock repurchases by a member institution with board representation must have full board approval.