said late Monday that it would cut 1,015 jobs, about 22% of the present total, to save $43 million a year.
The $14.6 billion-asset Honolulu banking company, which owns Bank of Hawaii, said it expects to take a $23 million charge in the third quarter to cover the cuts. Those cuts are a main feature of a restructuring program called New Era that is expected to boost revenues $21 million by the fourth quarter of 2000, the banking company said.
The restructuring also includes a sales push throughout the company's branch network and the creation of new business banking centers.
Analysts responded positively to Pacific Century's announcement, predicting significant improvement in performance. "By the fourth quarter of next year, if they pull this off, they will report something close to the mid-50s in terms of an efficiency ratio, which is basically where most of their peers are," said David H. Winton, an analyst with Keefe, Bruyette & Woods in New York. "I'd be happy with that."
The efficiency ratio measures expenses as a percentage of revenues. The redesign project began in March with goals that included cutting Pacific Century's to 55%, from 65.7%. Other goals included improving return on assets to 1.2%, from 1.05%, and return on equity to 17.5%, from 12.72%.
The company said it hoped to reach these goals by the end of 2000. The revenue goals, though modest, will be harder to accomplish than the cost savings, observers said. "Now that the announcement is out, the hard part starts," said Charles B. Wendel, president of Financial Institutions Consulting in New York. "It's called execution."
Boosting revenue involves an array of challenges, including the enforcement of new pricing policies and the waiving of fewer fees, steps that could alienate customers. "The Hawaii market is very low-growth, so you have to treat the customer very gingerly and prevent them from going to another bank," Mr. Wendel said.
Customer defections in the wake of similar restructurings caused two large banking companies to lose their independence: CoreStates Financial Corp., which was bought by First Union Corp. in 1998, and Michigan National Corp., acquired by National Australia Bank in 1996.
In most cases, a reorganization is successful if the company undergoes a change in senior management or "develops a very driven, market-oriented team of people," Mr. Wendel said.
Pacific Century, faces the additional challenge of trying to improve its performance against the backdrop of a stagnant island economy.
"Expecting to get to that 55% efficiency ratio is ambitious, given the sluggish state of their economy and their current ratio," said Joseph K. Morford, an analyst with Dain Rauscher Wessels in San Francisco.
To reach its revenue goal, Pacific Century will introduce several new services over the next 12 months and renew its focus on business banking. The company said it plans to open several new business-banking branches, offer new electronic banking services developed to help small businesses manage their finances, and beef up its corporate banking teams with experts in specific industries.
Also, staffed "welcome centers" will be installed in Bank of Hawaii branches to ensure that customers are served promptly and thoroughly. The company also expects to open a handful of supermarket branches. "The road map they've laid out to get them to their revenue goal is a reasonable one,'' Mr. Morford said.
Pacific Century also said Monday that it would repurchase up to 300,000 of its own shares, beginning in the fourth quarter. Shares of Pacific Century closed Tuesday's trading at $19.0625, up 75 cents.
