HONOLULU - Thwarted in its most recent attempt to acquire a bigger presence on the mainland and running out of ways to achieve substantial growth in its home markets, BancWest Corp. is readying itself for a second push eastward.
"We see the future of the company in the western United States," Walter A. Dods Jr., chairman and chief executive officer of BancWest, said during an interview last week in his office overlooking Honolulu Harbor and the Pacific Ocean.
The $17.5 billion-asset banking company, formed in the 1998 merger of First Hawaiian Corp. and Banque Nationale de Paris' BancWest Corp. in San Francisco, said it wants to build on its base on the mainland. It is looking to acquire companies based near its own branch offices with $500 million to $1.5 billion of assets.
Mr. Dods is optimistic about the company's expansion plans on the West Coast despite a recent notable setback. BancWest's agreement to buy 68 branches in Utah and Idaho from Zions Bancorp and First Security Corp., which would have made its subsidiary Bank of the West the second-biggest bank in Utah, collapsed after Zions and First Security cancelled their own merger agreement in March.
BancWest's expansion plans come at a time when investors are leery of big acquisitions. Its failed purchase of the branches from the Zions' deal sparked a 7.6% rise in its share price, illustrating the current distaste for such moves.
"The market hasn't been wild about deals,'' said Rosalind Looby, an analyst at Donaldson, Lufkin & Jenrette, adding, "They've been pretty open about their willingness to do more."
But the banking company's hand is being forced to some degree by the limited opportunities available to it unless it does a deal. First Hawaiian, for example, holds a dominant position in Hawaii and could not make a large acquisition there if it wanted to - BancWest did buy a small Hawaiian thrift with $18 million in deposits in January - meaning it must look to mine customers for additional business in a narrowly-based local economy.
Perhaps to underscore the commitment, the holding company is likely to move its headquarters to the mainland in order to keep up with this planned growth, said Mr. Dods, although he stressed there was no timetable for such a move.
Mr. Dods insists "we don't have anything hot today," when asked potential acquisitions in the works. But observers said it is likely that BancWest could return to the scene of its most recent effort with a bid for branches in the Southwest that Wells Fargo & Co. and First Security must divest as part of Wells Fargo's pending acquisition of the Utah bank.
Executives from Bank of the West in San Francisco had already spent significant time with branch employees in the new states. Some had even sent the future employees good faith tokens, such as stuffed California bears, the mascot of Bank of the West.
Though BancWest received a breakup fee of $5 million because of the failed deal, management clearly viewed the loss of the Utah and Idaho branches as an unfortunate reversal. "Of course we were disappointed," Mr. Dods said.
Preparation for a mainland thrust is evident in areas beyond market research. Though Mr. Dods, 58, seems most comfortable in the flowered Hawaiian "Aloha" shirts favored by executives on the islands, he is pictured in a dark suit and tie in the holding company's annual report, a photo apparently taken with the eyes of mainland investors in mind.
"Given how much of our business comes from the mainland, I figured I could make the 30-second concession to have the picture taken," he says, laughing at his own reluctance.
Setting out on an acquisition course will pit the company against Wells Fargo in more ways than one. BancWest will not only be building a presence in states Wells has already staked out, but it may find itself bidding against Wells in some cases. Wells has been on a bit of a buying spree - announcing plans to buy at least nine depository institutions in the last 14 months.
BancWest has met with some success, last year acquiring a Northern California community bank that specialized in small business lending, SierraWest Bancorp, a $900 million-asset company based in Truckee.
BancWest will also be looking to buy at a time Wall Street is not necessarily thrilled with the idea.
Since January shares of BancWest Corp. have dropped 6%, in contrast to a gain of .45% in the American Banker index. Contributing to pressure on the stock is the general perception that Banque Nationale de Paris, which owns 45% of the holding company, is very supportive of growth by acquisitions despite the potential damage to the company's near-term stock price, analysts say.
The mainland expansion strategy, marked by the merger with Bank of the West, was an obvious attempt to diversify the exposure of First Hawaiian, the second-largest banking company in the Hawaiian Islands, to the local economy.
Times have improved somewhat in the year since First Hawaiian merged with Bank of the West. In the first quarter, First Hawaiian's net income rose 8% from a year earlier, to $26 million. At the holding company level, nonperforming assets have dropped 5.3%, to $123 million, largely due to better results at the $7.3 billion-asset First Hawaiian.
"The frosting on the cake is First Hawaiian," Mr. Dods said.
In one sign of renewed wealth in the islands, long reliant on Asian money, and an important indicator of how the state's banks fare, Japanese visitors on package tours are an increasingly common site here. Gathered in hotel lobbies and shops in this capital city, these tourists are bringing back some of the business whose absence after the Asian crisis helped pull the rug from under the Hawaiian economy.
For the first quarter, the number of Japanese visitors to the islands was greater than the previous year, rising by 2.9%, to 470,697, according to Hawaii's Department of Business, Economic Development and Tourism. Observers say they are seeing greater numbers than during the immediate aftermath of the crisis, with some interesting permutations. Package tours and group tours in the first quarter, for instance, were up 32.6% and 8.6%, respectively, from a year ago.
In the first quarter, the number of visitors to Hawaii increased 2% from the same period last year. The hotel industry began to show signs of improvement in 1999. Occupancy rates increased 1.5% last year, to 73.13%, and revenues per room rose 2.6% compared to 1998.
Not everyone is as optimistic about the rebounding Hawaiian economy. Ernie Watari, chairman and chief executive of PKF Hawaii, an accounting, tourism, and consulting firm in Honolulu, said that what worries him is that tourism on the islands is still centered on two geographies: Japan and the West Coast of the United States.
"With 85% of tourists coming from the U.S. mainland and Japan, we've got our eggs in two baskets." said Mr. Watari. In addition, rising interest rates designed to slow down the hot mainland economy could stunt the recent recovery of Hawaii's already cool economy, he said.
First Hawaiian holds 41% of the state's deposits, and anti-trust laws prohibit it from acquiring any other institution in its home market without divesting. It has straightforward designs on its home market: increase non-interest revenues and win additional business out of existing customers.
The company and its subsidiaries have some serious work ahead. Return on equity, at 10.74% for the first quarter, is still well below that of its peers. The company's financial ratios have been dampened by the $800 million of goodwill carried over from the Bank of the West merger, which used purchase accounting because of BNP's ownership of Bank of the West, Mr. Dods said.
But Ms. Looby, the analyst, said the presence of goodwill is not the only factor accounting for the low return on equity. She attributed this performance to BancWest's business mix, including indirect automobile leasing, and the effects of a relatively poor Hawaiian economy.
In its favor, First Hawaiian's merger with Bank of the West has been free of some of the conversion and public relations troubles that have plagued other large bank combinations. Because the companies operated in two different markets, each retained its brand identities and management.
BancWest also avoided major systems conversion by keeping the two banks separate, although it has been gradually combining certain back-office functions. First Hawaiian, for instance, now does the processing for Bank of the West's trust portfolio. Starting this fall, Little Rock, Ark.-based Alltel Inc. will do the data processing for First Hawaiian and Bank of the West out of a First Hawaiian location near the Honolulu airport.
Mr. Dods, who joined First Hawaiian in 1968 as director of public relations and has spent his entire professional career there , said he has not planned a retirement date soon. His successor, however, is already apparent.
Don J. McGrath, chief executive officer of Bank of the West, holds the No. 2 position in the holding company, president and chief operating officer, working out of the bank's San Francisco headquarters and its Walnut Creek, Calif., administrative offices.
"It doesn't take a rocket scientist" to figure out that Mr. McGrath, 50, will get the top job at some point, Mr. Dods said. "He is clearly the heir apparent."
