Banque Nationale de Paris SA and First Hawaiian Inc. confirmed Thursday that they were in merger talks.
First Hawaiian said it was weighing a merger with the French bank's San Francisco-based subsidiary, Bank of the West. It announced Thursday afternoon that its board would meet "later today" in Honolulu and that it would say nothing more "unless and until" an agreement is reached.
First Hawaiian's shares rose $1.0625, to $37.50, on the news.
The banks were considering a deal that would be structured as a merger of equals between Bank of the West and First Hawaiian. Banque Nationale de Paris would own 40% to 50% of the merged bank, analysts said.
This would give BNP, France's third-largest bank, stock in a publicly traded U.S. company that it could use to finance additional mergers and build its retail business in North America, analysts said. A merger could also help revive First Hawaiian, whose stock has fallen 9% this year as a decline in the number of tourists from Asia dragged down Hawaii's economy.
Baudouin Prot, managing director at BNP, told Bloomberg News on Thursday morning that "negotiations are under way, but nothing has been finalized yet."
BNP acquired Bank of the West in 1979. Until recently analysts thought BNP, which was privatized in 1993, would sell the U.S. banking unit rather than build it.
Stellar earnings at Bank of the West from California's strong economy evidently caused a change in that thinking.
Bank of the West, the 10th-largest commercial bank in California, with $4.5 billion of deposits and 106 branches according to Sheshunoff Information Services, saw its earnings rise 20% in the first quarter and 43% in 1997.
"Business abroad especially contributed to the bank's earnings in 1997, so it would be logical for them to want to swallow up additional share there," said Sheila Garrard, European banking analyst with Lehman Brothers, London.
She said BNP is focusing on building "universal banking" in Europe- offering a full array of commercial, investment banking, and insurance services to corporations and institutions-while starting to focus on building its retail banking business in the U.S.
First Hawaiian, Hawaii's second-largest bank, operates 59 branches in Hawaii and 38 in the Pacific Northwest.
But business has stagnated recently. First Hawaiian's earnings rose 3.5% in the first quarter, and its stock price has slumped. In April chief executive Walter A. Dods Jr. announced he would lay off employees and freeze salaries for top executives. He cited Hawaii's sluggish economy triggered by a fall in Asian tourism as reasons for the cutbacks.
"The Hawaiian banks really want to get more assets off the islands," said Jeff Runnfeldt, bank analyst at Van Kasper & Co., San Francisco. "First Hawaiian has done some of that by buying branches in Oregon and Washington. Merging with Bank of the West would really give them a push."
A West Coast investment banker not involved with the deal said outside First Hawaiian shareholders would probably be unhappy with management accepting a no- or low-premium merger with Bank of the West. "First Hawaiian's stock trades at just 1.6 times book, and if management can't sell for more than that, they'll have to explain why," the banker said.