Two more companies have opted to sell securities to reposition their balance sheets, and a third said the impact of a previously announced restructuring would not be as severe as anticipated.
Central Pacific Financial Corp. of Honolulu, the parent company of Hawaii's fourth-largest bank, said Wednesday that it sold $109 million of securities to improve its net interest income and net interest margin.
The company, which has assets of more than $5 billion, said it would report a fourth-quarter loss of $954,000, or 3 cents a share, because of the restructuring. On Wednesday morning the average analyst estimate for Central Pacific's per-share earnings for the quarter was 67 cents.
Also on Wednesday, Western Alliance Bancorp. of Las Vegas said it plans to sell 25% of its $609 million securities portfolio to improve its liquidity, interest margin, and future earnings. The sale would result in an after-tax loss in the fourth quarter of up to $3 million, or 10 cents a share, the $4.2 billion-asset company said.
Western made the announcement as it unveiled a deal to buy the $402 million-asset First Independent Capital of Nevada in Reno. (See story
Fifth Third Bancorp, however, had good news for investors Tuesday - it said that the impact of a restructuring of its securities portfolio would be not be as great as it had predicted.
These companies join a long list of large and small banks that have reshuffled their balances sheets in recent months and weeks because of the interest rate environment.
Thomas Monaco, an analyst at Sterne Agee & Leach Inc., who initiated coverage on Central Pacific a "buy" rating Wednesday, said its announcement took him by surprise.
But "in an interest rate environment such as this," the securities sale is a positive step. Last quarter was the first in which Central Pacific lost money on its investment portfolio, he said.
"If you're losing money on your portfolio, you might as well take the charge and get rid of the securities," he said. "It's all about earnings and returns for the shareholder. I know the CEO Clint Arnoldus is very focused on that."
David Morimoto, senior vice president and treasurer at Central Pacific, said that the move increases "prospective earnings." He said the company could explore other ways to hedge against rates, such as using derivative-based tools, including interest rate floors, to reduce risk.
The $105.8 billion-asset Fifth Third said Nov. 20 that it would sell about $11.5 billion of securities to pay down debt. It had estimated the restructuring would cost about $500 million before taxes this quarter, or 58 cents per share.
On Tuesday, Fifth Third lowered that estimate to $460 million, or 54 cents a share. The average analyst consensus for the Cincinnati company's per share earnings was 6 cents a share Wednesday, according to Thomson First Call.
Fifth Third cited a recent decline in long-term interest rate with improving the results of its sale.
"Long-term interest rates cooperated with us, which was a very good thing," a Fifth Third spokeswoman said.
Several other companies have paved the way by selling securities in recent months.
Gary Townsend, an analyst at Friedman, Billings, Ramsey & Co. Inc., said "the motivations are pretty much all similar, and that's to enhance performance."
"The general interest rate environment is poor," he said. "If your securities are funded by short-term debt, you're going to have a poor return on your investments."
Mr. Townsend said his firm expects the Fed to lower interest rates by mid-2007.
The Federal Reserve has left interest rates at 5.25% at every meeting since August.
Still, the central bank has repeatedly warned of inflation risks and the possibility of further rate hikes. Richard Fisher, the president of the Federal Reserve Bank of Dallas, said Tuesday that regulators might need to raise interest rates to stave off inflation next year.
In prepared remarks, Mr. Fisher said, "The risk of unacceptably high inflation still outweighs the risk of substandard economic growth."
Mr. Monaco said, "I don't think there's any clear view as of this stage as to what the Fed is thinking about doing."
