Central Pacific Bank (trading symbol CPF)

[Nords]

Well, good, no political risk here!

As a 20-year Inouye watcher, the fact that it's his "personal bank" is meaningless. He's just as aggressive with every activity in Hawaii, whether he's personally connected with it or not. It's his way of keeping score.

When the USS ARIZONA Memorial was fundraising for a $50M replacement visitor's center, the head of the board of directors made dozens of calls & mailings to local & Mainland businesses. Nothing. He made one phone call to Senator Inouye's office and a few days later had a short followup with the man himself. Next week General Dynamics and Boeing were falling over themselves to see who could give more millions to the cause, followed by a host of lesser companies & subcontractors. The fundraising was finished in less than a month.

I sincerely doubt that an octogenarian senator's gives a rat's ass finances would be adversely affected by the fate of CPB common shares, either. But it's nice to know that he's not personally gunning against the bank. That would be a killer.

[Texas Proud]

Quote:

Originally Posted by Nords Well, good, no political risk here! As a 20-year Inouye watcher, the fact that it's his "personal bank" is meaningless. He's just as aggressive with every activity in Hawaii, whether he's personally connected with it or not. It's his way of keeping score. When the USS ARIZONA Memorial was fundraising for a $50M replacement visitor's center, the head of the board of directors made dozens of calls & mailings to local & Mainland businesses. Nothing. He made one phone call to Senator Inouye's office and a few days later had a short followup with the man himself. Next week General Dynamics and Boeing were falling over themselves to see who could give more millions to the cause, followed by a host of lesser companies & subcontractors. The fundraising was finished in less than a month. I sincerely doubt that an octogenarian senator's gives a rat's ass finances would be adversely affected by the fate of CPB common shares, either. But it's nice to know that he's not personally gunning against the bank. That would be a killer.

The story seemed to indicate it was his major investment... the guy who told me about it said he had over 50% of his money there... I guess someone could look at disclosure statements... but they are usually worthless anyhow... but he has not filed one for 2008, so you would think something is up..

[Purron]

Quote:

Originally Posted by Texas Proud The story seemed to indicate it was his major investment... the guy who told me about it said he had over 50% of his money there... I guess someone could look at disclosure statements... but they are usually worthless anyhow... but he has not filed one for 2008, so you would think something is up..

From the Huffington Post article posted earlier:

"Inouye reported ownership of Central Pacific shares worth $350,000 to $700,000, some held by his wife, at the end of 2007. The shares represented at least two-thirds of Inouye's total reported assets. Inouye has requested a delay in filing his annual financial disclosure for 2008, which was due this spring, and he declined to provide the current value of his investment. Since the end of 2007, the bank's stock has lost 79 percent of its value."

[Nords]

In the last couple weeks CPF has dropped 25%. Over the last month it's off by a third. That's a lot more noticeable when the share value starts out a bit over a couple bucks and then tumbles downhill.

It took me a while to realize that the drop has probably been caused by CPF leaving the Russell 2000 & 3000 indexes. (I knew CPF was in a KBW bank index but I didn't consider that it could be in a number of other indexes.) Forcing institutions to divest themselves of a thinly-traded new microcap must put a lot of pressure on the share price.

Business Briefs - Hawaii News - Staradvertiser.com
CENTRAL PACIFIC FINANCIAL CO (CPF:US): Stock Quote & Company Profile - BusinessWeek

CEO John Dean is presumably still canvassing the country on his recapitalization roadshow, although I haven't heard any progress reports. I'm a bit curious whether his VC firm (or any other) would take a lead-investor role on a $200M project. And while Dean is probably pretty proficient at rescuing banks, it's interesting to note that he hasn't taken the initiative of buying shares on his own. He's been awarded 200,000 shares of restricted stock, sure, but if he'd step in with $5M-$10M of his own money then he could double CPF's share price overnight and get a good jumpstart on his recap. Until he takes some symbolic step of faith, I don't see what would motivate anyone else to invest.

The bank has nothing left to attract shareholders. The FDIC says it can't pay dividends on its common stock. Heck, even the federal govt has told it not to pay dividends on its TARP shares. It's hamstrung by the FDIC's consent decree requiring "get healthy" capital ratios that are more stringent than other banks, so CPF couldn't compete as easily even if they had enough capital to compete with. And as everyone has already pointed out, the FDIC may just be biding their time before they formally take over. I'd hope that Dean has been able to avoid a takeover, but we have no publicly-available info to remove the overhanging cloud of doom on that issue.

Another issue, which may be local to Hawaii, is whether the bank has the staying power to get it through a couple years. It takes literally that long for Hawaii residents to trust that the company is committed to staying local (especially after chasing California real estate) and then it may take a few more months for someone to bravely step forward to begin the crowd surge. Too many other companies have entered Hawaii with a big splash while not really understanding their customers or being willing to commit to a long period of developing trust. Others have forgotten their local customers, lost their trust, and suffered the consequences.

CPF calls are selling for 15 cents a contract. A "bulk buyer" of call contracts could probably get a 10-cent price. Hmmm. But it could literally be years before the bank digs itself out of its hole, and there doesn't seem to be a quote for CPF LEAPS. The volatility is also "driving up" the cost of the calls, so a longer period of stagnation may just make call prices even more attractive. Ideally the bank would stay at a flat stock price with a breakeven quarter or two of revenue that would make investors interested in 6-9-month contracts.

Investors would have to literally hope that any money invested now wouldn't be appropriated by the regulatory authorities for the 12-24 months it would take for the bank to restore its cash flow. By then the share price could easily triple an investor's money-- a multi-month lottery with at least a 200% payoff against the substantial risk of a 100% loss. If we're supposed to be greedy when others are fearful, then this is a great time to be greedy. Unfortunately loss aversion is still more painful than a multiple gain.

I think a collateral problem is that I have nothing to be greedy about. Assuming there's a few thousand bucks of cap gains to be made if the share price goes up a buck or two, it wouldn't change my life.

[Kalihi Product]

What I cannot get out of my mind is that two of the most solid banks in the U.S. operate in Hawaii. They remain solid and profitable by sticking to the Hawaii base of operations. CPB has gotten rid of their mainland loser operations and is committed to serving the Hawaii community. Shouldn't this mean that CPB will return to profitability? Sure the hurdles are great and in the words of the old sage "the surgery was sucessful but the patient died" may hold true, but this is an interesting story. Didn't BOH face the same problems several years ago with the new leader (who put his money where his mouth was by investing $10M in the bank) applying the same strategy to bring the bank to where is is today? As far as the bank going under, Tier 1 capital seems to be higher then the stipulated "DOA" line of 4%, so I think they are viable. Is CPB worth a speculative throw of money? I think so, but underline the word speculative. Don't go crying if the patient does not survive.

[Nords]

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Kalihi Product

John Dean, is that you?

I'm always amazed at what inspires a new member's first post...

[Kalihi Product]

Yes, this is my first post ever to a blog. And yes, the prior comments did motivate me to make a posting.

I think that CPB serves a niche in my community. And, I think that having the choice of 3rd (or 4th if you count ASB) bank is good for Hawaii for all of us.

I also believe in fixing things that are broken.

As such, I hope that CPB gets back on its feet.

[Purron]

Quote:

Originally Posted by Kalihi Product Yes, this is my first post ever to a blog. And yes, the prior comments did motivate me to make a posting. I think that CPB serves a niche in my community. And, I think that having the choice of 3rd (or 4th if you count ASB) bank is good for Hawaii for all of us. I also believe in fixing things that are broken. As such, I hope that CPB gets back on its feet.

Clearly, CPB has served your community for many years. However, the biggest concern of the FDIC is protecting the insurance fund. 2010 is likely to have the largest number of bank failures in many years. This poses a thread to the entire financial services industry.

While I understand your desire to keep this bank alive to provide service to the community and a healthy amount of competition, the sad reality is I don't think these will be primary factors in the decision.

The biggest factor should be, and perhaps is, the chance this bank will rebuild capital and return to profitability. Another major factor in this case is the interest Senator Inouye has in this bank. He's an investor, was involved in the formation of the bank, and has used his power on Capitol Hill to get government support and call off the "FDIC hounds".

There are struggling community banks in my area that aren't so lucky to have a friend on the Hill. It will be interesting to see how this all unfolds.

[Texas Proud]

It seems like the FDIC is in the process of trying to close as many smaller banks as they can.... if a bank does not get to 12% equity it has a chance of being closed in the future...

Don't know what this bank has right now.... but I bet it will be on the short list to be closed if the dems lose congress...

[survivor1998]

Quote:

Originally Posted by Nords Thanks. Since they're already on the hook with the consent decree, looks like FDIC could let this drag on indefinitely unless CPB does something to piss them off. It's my understanding that Honobob is no longer able to post to this board. But he's stalking HawaiiThreads.com and posting to... the real estate threads. He's well-behaved (so far) but it'll be interesting to see if he's really turned over a new leaf or if it's just deja vu all over again. I think they just have to make people (and possibly an index fund or two) feel good about them. A reverse stock split, a profitable quarter... hope... but you're right that the company is going to be crippled until they get the FDIC off their backs. I see no fundamental reason for the stock to leave its $2-$3 share price until they restore profits & dividends, which could take another year or two. Looks like John Dean has already decided to hit the road shows: Bank's chief will go on tour to raise cash - Hawaii Business - Staradvertiser.com I think a recap investment by a VC or a private equity fund is exactly the type of "hope" he's selling. Another issue, that I'm still trying to sort out for another thread-starter, is just how much more money I need to chase. I certainly don't need the risk, and I don't have any spending plans for prospective cap gains. There's way more curiosity here than commitment.

CPF seems to be a speculative stock at this point. It would be a high risk to buy it. According to the S & P Report and looking at their fundamentals: They are down to $1.47 per share; Their losses have increased 120% so far in 2010 in comparison to 2009. Profit margin is a -219% Earnings per share is -236% If you would have invested $10K five yrs ago - the value of your money would be $ 464.00. However, their 2nd Quarterly report is due July 30th. Losses increasing for 2010 = many more foreclosed homes that they are not advertising. They don't want to flood the market so they auction a few at a time which avoids "fear" and keeps the values up for the banks and RE agents.

[Nords]

Quote:

Originally Posted by survivor1998 CPF seems to be a speculative stock at this point. It would be a high risk to buy it. According to the S & P Report and looking at their fundamentals: They are down to $1.47 per share; Their losses have increased 120% so far in 2010 in comparison to 2009. Profit margin is a -219% Earnings per share is -236% If you would have invested $10K five yrs ago - the value of your money would be $ 464.00. However, their 2nd Quarterly report is due July 30th. Losses increasing for 2010 = many more foreclosed homes that they are not advertising. They don't want to flood the market so they auction a few at a time which avoids "fear" and keeps the values up for the banks and RE agents.

I think it's difficult to use trailing numbers to analyze a potential turnaround stock.

I also don't think they have a huge foreclosure inventory, especially not compared to the rest of the Hawaii banks. Most of CPB's financial mess occurred with Mainland developers, not local Hawaii homeowners.

[Kalihi Product]

Quote:

Originally Posted by Nords I think it's difficult to use trailing numbers to analyze a potential turnaround stock. I also don't think they have a huge foreclosure inventory, especially not compared to the rest of the Hawaii banks. Most of CPB's financial mess occurred with Mainland developers, not local Hawaii homeowners.

I am sure most of the foreclosure inventory was aggressvely written down coming into this reporting season. The numbers were too huge. I think the foreclosure portfolio was bled dry. Goodwill was also written down in the 1st qtr of 2010.

So da guy needs to recap the bank...... makes sense to writedown as much as possible (did not happen on your watch, so do it), to try to set up "return to profitablity" scenario which will attract private equity money. Is it going to be this quarter? Next quarter? Even if they show a "profit," it could say just 10 buck. Could be years before show anything significant.

This my best guess scenario as to what CPB is trying to do. Pure spec. Nice movie story? CPB is announcing earnings on Friday. We will see.

[Nords]

Intriguing market behavior today.

The 2Q results come out Friday before the market open (Central Pacific Financial Corp. Announces Second Quarter 2010 Earnings Release and Conference Call). No other press releases or news items have hit the media.

Today (Tuesday) CPF traded up a whopping 16 cents (+10%) on significantly higher volume. Of course that's only about a million bucks of total trading activity.

Not only did the shares trade higher, but their Dec10 $2.50 call options have come back to life. After being dead for months, with bids at 10 cents and the last trade at 15 cents, today someone bought 30 contracts at 20 cents. Granted that's only $600 bucks, and the stock would have to shoot up to over $2.70/share to be worth the exercise, but someone must be planning to flip a few calls.

I think the whispers are starting to leak out. Should be interesting to see what everyone's getting so excited about.

[Purron]

Oh, do keep us posted Nords. This is fastinating - well to me anyway 'cause I'm just nerdy that way.

[Nords]

Quote:

Originally Posted by Purron Oh, do keep us posted Nords. This is fastinating - well to me anyway 'cause I'm just nerdy that way.

I like watching train wrecks too!

[Nords]

Up another 11 cents on Wednesday, a total of 18% in two trading days...

[Nords]

Thursday's trading actually brought the shares back down to $1.65, so now I'm beginning to doubt that word leaked out on Mon/Tue/Wed. Interesting example of hope (at the beginning of the week) triumphing over reality. The share volume was certainly high enough to make a tech analyst happy.

Central Pacific Financial Corp. Reports Second Quarter 2010 Results

CPF's 2Q results can be summarized as "sucks less than before". Of course they're running out of things to write off (goodwill) and they're still stuck with $467M in non-performing loans. This is nearly double last year's bad news but it looks like this number peaked last quarter, so perhaps the worst is behind them. Tier1 and total capital ratios improved by a few decimal points. While the patient still needs a huge transfusion, at least the arterial hemorrhaging has subsided.

Other "good news" is that CPB appears to be extracting itself from the CA real estate market. Non-performing construction/development loans there have been getting sold off for some time and the bank now has more bad loans in Hawaii than in CA. Of course they've been "getting rid" of these loans by selling them for pennies on the dollar or completely writing them off, so it's another pyrrhic victory.

It looks like the combination of "losing less" and "improving ratios" (however slight) is a step in the right direction that would at least persuade the FDIC not to take over the bank. Of course their competitiveness is still crippled by the consent decree and the $130M of TARP money. I think it'd be extremely difficult to persuade investors to chip in $200M to recapitalize the bank when $130M would immediately go back to the federal govt. Any economic shock, let alone the lowest interest rates in 40 years, could still knock them off the perch. I suspect that there'll be at least one or two steps backward over the next year.

CPF is doing a conference call at 1 PM ET (two hours after this post). There doesn't seem to be any strong market reaction to their quarterly numbers, and it's hard to imagine that a phone call will change that.

I can't see any fundamental reason to invest until the consent decree is cleared and the TARP money is getting paid back. Call options don't seem to make much sense with a minimum $2.50 strike. I'm even ambivalent about preferred shares.

[Kalihi Product]

I listened to the conference call and read about CPB in Saturday's paper. So Dean is going to wait to the end of this year or next to recapitalize. Too much skepticilsm and probably too much dilution if he does it now.

The bank has positive cash flow and needs to improve their operating numbers for the 3rd quarter. If they do, we may see some fireworks.

[Nords]

Quote:

Originally Posted by Kalihi Product I listened to the conference call and read about CPB in Saturday's paper. So Dean is going to wait to the end of this year or next to recapitalize. Too much skepticilsm and probably too much dilution if he does it now.

F'gosh sakes, the guy's a partner in a venture capital firm (Startup Capital Ventures - Our Team) and I think he knows that his only job is fundraising. He was pretty clear back in May that he was going on a rainmaker's road show, but I think he's been told by his audiences that there'll no VC money until the TARP's off their balance sheet. He may be "waiting" for quite a while.

Cash flow is always appreciated but as ClifP has pointed out, I think the consent decree is crippling their competitiveness. Getting rid of that will evoke a nice aerial display, but they're probably obligated to at least start complying with it before they can jawbone the FDIC about getting rid of it.

I still can't figure out whether Dean took this job out of genius or hubris. He probably figures it's an irresistible challenge and he has nothing to lose, but the fact that he has nothing at risk makes me question his commitment. Buying 500,000 shares on the open market from his personal funds would certainly make a fundraiser's statement.

[Kalihi Product]

Interesting comment. I think it takes a combination of genious or hubris to do this jon. You can see Dean's game plan slowly unwinding. It is going to take good timing, patience and luck to get pull it off.

Don't know if his only job is fund raising. He seems to have a lot of experience with banks.