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Old 09-29-2010, 08:57 PM   #41
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No apparent significant changes in CPF's financial position, although their name is showing up in a few West-Coast lawsuits with developers and real-estate investors. The stock closed today at $1.49/share. CPF options are almost dead-- very few trades in the last few months and no call contracts offered past December.

However John Dean has persuaded Larry Rodriguez, another local financial legend, to come out of retirement to take the CFO reins:
http://pacific.bizjournals.com/pacific/stories/2010/09/20/editorial2.html?b=1284955200^3964051

In this situation it seems to be more about why some prefer to never retire (WSJ: Why Rich People Never Retire). However a team of all-stars is in place, ready to work their magic as soon as they recapitalize the bank and get out from under the consent decree.

I suspect that the stock will rise 10-20% in the next few months as they get ready to report quarterly numbers. Maybe it'll rise again next year when the annual report approaches. But it may also just incite waves of selling on the news as long-term shareholders give up.

This seems to be a classic case of a turnaround situation with great potential. The only issue is assessing the execution risk and estimating the time it'll take to work it out...
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Old 09-29-2010, 09:06 PM   #42
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I bought Bank of Hawaii BOH earlier this year. The stock ran up 10% in a few days ,I decided to sell as my gain was over $500.
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Old 10-27-2010, 05:52 PM   #43
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Heh-- Carlyle might be sniffing around.

FT.com print article

Quote:
The Carlyle Group is said to have emerged as a leading private equity firm interested in investing in Central Pacific Financial (NYSE:CPF), two industry sources told dealReporter. [...]
Carlyle’s interest alone is not enough to seal a deal because Central Pacific needs several investors for regulatory and tax reasons, sources said. [...]
A recapitalization deal has “lots of moving parts,” said a source briefed on the Central Pacific talks, who added that several private equity firms are considering investing in the bank. Estimates for how much capital the bank needs to raise range from USD 200m to USD 500m, the source said.
A spokesperson for Central Pacific said he was unable to comment ahead of the institution’s 3Q10 earnings release on 1 November. A spokesperson for Washington DC-based Carlyle declined to comment.
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Old 11-03-2010, 08:21 PM   #44
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CPF reported 3Q results on Tuesday. The moment the press release came out the stock gapped down from $1.50/share to $1.20 but has since recovered to $1.45.

Central Pacific Financial Corp. Reports Third Quarter 2010 Results

The good news is that they lost "only" $72.5M, or $2.46/share, compared to last year's loss of $183M, or $6.38/share. Unfortunately last quarter they had lost only $16M ($0.60/share) so the quarterly trend is discouraging. The fine print also noted that last year they'd taken $111M of the $183M in one-time charges, so there's really been no progress except to sell off bad loans and to shrink the deposit base.

Disturbingly:
Quote:
The Company's Tier 1 risk-based capital, total risk-based capital, and leverage capital ratios were 7.23%, 8.57%, and 4.39%, respectively, compared to 9.08%, 10.41%, and 6.07%, respectively, at June 30, 2010. The declines in the Company's capital ratios are largely the result of the previously mentioned increase in the allowance for loan and lease losses.
This happened while CPF is under an FDIC consent decree to raise those first two numbers to at least 10% and 12%. They are not moving in that direction and have not yet reached compliance since the decree was signed last December-- over 10 months. However they've just about finished selling off their California real estate developer's loans.

Also disturbingly:
Bank loses money, but for good reasons | Pacific Business News
Quote:
John C. Dean, who was brought in last March as executive chairman to turn things around at Hawaii’s fourth-largest bank, said earnings are going to “bounce around” as the bank works to improve its position.
“We certainly have a plan in place to get to profitability next year,” he told PBN. “We looked at it as a very good quarter in the sense of continuing to improve the overall quality of the assets.”
So, while the bank lost more than expected last quarter, it was for good reasons, one analyst noted.
But perhaps salvation is at hand, although you can't tell from the share price:
Quote:
The Company also announced that it has been working with a private equity investor and believes it is close to agreeing with the investor on the material terms for an investment of approximately $98 million of a contemplated $325 million capital raise and is in the process of seeking to finalize an agreement for such an investment by the end of the week. The Company is also in negotiations with another private equity investor for an investment of a similar amount. [Investor] conditions are expected to include, among others, investments by additional investors for the balance of the $325 million capital raise, exchange of the [$135M of] TARP preferred stock for common stock on terms agreeable to the investors and agreed upon by the U.S. Department of Treasury, regulatory approvals,... and other conditions. The $98 million investment would represent 24.9% of the common equity interests of the Company (assuming the exchange of the TARP preferred stock on terms consistent with such agreement). The company also plans to conduct a $20 million share rights offering after the closing of the capital raise that will allow existing shareholders or their transferees to purchase common shares at the same purchase price as the other investors.
I'm not a highly-paid banking exec myself, let alone an experienced Silicon Valley VC with several bank rescues under my belt, so I'm not sure how to spin this. But it seems to me that the time to have arranged that $325M news would have been BEFORE the 3Q press release. This report appears to be the semantic equivalent of "We've been losing the game every one of the last three quarters but we're going to make it up before the final whistle!" or at least "Well, we don't have any good news here, so let's talk about what might happen next month!" If I was Carlyle the fabled private equity investor, I'd be looking at the 3Q numbers and planning to really cram these guys down for my money. But presumably John Dean is happy with the terms he's about to be force-fed, because he's probably looking nervously over his shoulder to see if the FDIC is lurking there with the Grim Reaper.

Presumably I could have bought shares on the news ($1.20) and earned 20% in two days for my fortitude. But while the "right people" may be in place, I'm not seeing the numbers. I think the only thing holding back the FDIC is the challenge of Senator Inouye "too big to pawn off on Bank of Hawaii".

But hey, it's not all grim news:
Central Pacific Bank Named SBA Lender of the Year | Hawaii Reporter
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Old 11-04-2010, 06:32 PM   #45
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Looks like the private-equity investors are pulling it together after all:
Central Pacific Financial Plans to Raise $325 Million in New Capital
Quote:
CPF, parent company of Central Pacific Bank (CPB) announced today that it has entered into definitive agreements with The Carlyle Group and Anchorage Capital Group, L.L.C. (collectively, the "Lead Investors") pursuant to which each Lead Investor agreed to invest approximately $98 million in common stock of the Company. This investment is part of an expected aggregate $325 million capital raise by the Company from institutional and other investors ("Investors"). The investment and related transactions, which were unanimously approved by the Company's Board of Directors, are subject to the remaining $130 million of capital being raised, regulatory approvals and other conditions. The Company also plans to conduct a $20 million rights offering after the closing of the capital raise that will allow current shareholders or their transferees to purchase shares of common stock at the same purchase price per share as the Investors.

Each of The Carlyle Group and funds managed by Anchorage Capital Group, L.L.C. will own 24.9% of the common stock of the Company prior to giving effect to the rights offering. The shares of common stock will be purchased at $0.75 per share for an aggregate price of $195 million. Each Lead Investor shall be entitled to one Board seat on each of the Company and Bank boards of directors.
[...]
Closing of each of the Lead Investor's investment is conditioned on, among other things, receipt of requisite regulatory approvals and the Company's receipt of approval from the NYSE to issue the common stock in the capital raise in reliance on the shareholder approval exception set forth in Section 312.05 of the NYSE listed company manual (or, in the event that the NYSE does not provide such approval, receipt of shareholder approval of the issuance of common stock in the capital raise). In addition, the closing of each Lead Investor's investment is conditioned upon the Company raising the remaining $130 million from other investors and exchanging its TARP preferred stock for common stock and amending its TARP warrant on specified terms. Prior to closing, the Company also intends to undertake a one-for-twenty reverse stock split, which was previously approved by shareholders at the company's annual meeting held on May 24, 2010.

Closing of the capital raise is expected in the first quarter of 2011. CPF's current management team is expected to remain in place.
The press release came out after the markets closed, and CPF's stock closed today (Thursday) at $1.48/share. (I can't tell if CPF trades aftermarket.) As I understand this press release, the private equity firms think it's really worth 75 cents/share. However every share purchased between now and the closing of this capital raise entitles a shareholder to purchase some portion of a $20M pool of 75-cent shares. 26.7M more shares won't cover the existing shareholders very much when there are already 30,364,680 shares outstanding, but it's effectively a 7-for-8 warrant with a 75-cent strike.

I wonder what share price CPF will open at tomorrow...

Oh, and this isn't a done deal yet. They still have to cover another $130M worth of capital, which will probably mean at least two more investors since they're limited to $98M/25% ownership. Surely Carlyle and Anchorage can rope in a couple more.

There's still the matter of $130M of TARP shares, upon which CPF has been forbidden by FDIC consent decree to pay dividends. Somehow they have to persuade the FDIC to turn those preferred shares into common and then allow the company to restart dividends. Since various investors are ponying up $325M for the privilege, I guess the FDIC will decide that it beats the heck out of putting a bigger burden on its insurance fund.

But $325M injection or not, there's still nothing preventing the FDIC from taking over the bank on any Friday night.

I'm not sure by what analytical process the current shareholders have been valuing CPF st $1.20-$1.50/share, especially for a company that lost over $2/share last quarter and has a book value of -$1.63 (that's a negative number). This rudimentary calculation would appear to make CPF's closing share price of $1.48 a triumph of emotional hope over rational assessment. The interesting question is what CPF's share price will gravitate back toward after spiking down toward 75 cents.

Hypothetically on Friday morning someone with more cojones than cortex could stock up on cheap shares and wait for the price to drift back up...

Fearful? or greedy?
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Old 11-04-2010, 07:29 PM   #46
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Hypothetically on Friday morning someone with more cojones than cortex could stock up on cheap shares and wait for the price to drift back up...
Or Friday evening the FDIC shows up with some Canadian bankers in tow...

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Old 12-16-2010, 07:41 PM   #47
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Not much new to report.

No new news on the private equity fundraising, which is still contingent on the federal govt agreeing to convert their TARP shares to common. Maybe even to the govt this might be perceived as a dumb idea. They'd hypothetically get some additional warrants at 75 cents but I don't know how the FDIC would treat that on the Monday morning after a Friday-night takeover.

CPB hired a "chief administrative officer" from Startup Capital Ventures, which is the same VC fund John Dean came from. One by one he seems to be stripping the SCV bench and throwing them into the game.

Then there's the short interest:
Investment Research - Zacks.com
Quote:
Central Pacific Financial (NYSE:CPF) has a short interest ratio of 24.4 based on average daily volume of 160,000 shares and 3.9 million shares short. That equates to 12.9% of the 30.4 million shares outstanding.
I'm not sure what benefit a short sees to holding on to $1.40 shares in the hope that they'll cave to 75 cents. At this volume, it seems like they're setting themselves up for one hellacious short squeeze.
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Old 12-20-2010, 09:52 AM   #48
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Looks like the Treasury's playing ball, and the price is dropping:
http://www.snl.com/irweblinkx/file.a...3&FID=10519449
Quote:
Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (CPB), today announced that the U.S. Treasury agreed to exchange the Treasury's TARP preferred stock, having an aggregate liquidation preference of $135 million, plus accrued and unpaid dividends, for CPF common stock valued at approximately 37.5% of the sum of the original par amount of the TARP preferred stock plus accrued and unpaid dividends. The number of shares of CPF common stock to be issued in the exchange is based on a price of the lesser of $0.50 per share and the lowest price per share issued in CPF's recapitalization plan. The Treasury's consent to an exchange on the terms described above is subject to the execution of a definitive exchange agreement and certain other terms and conditions.

CPF previously reported that the conditions of the definitive agreements it entered into with two lead investors on November 4, 2010, included the exchange of TARP preferred stock for common stock at a value of 25% of the aggregate liquidation preference of the TARP preferred stock and 100% of the amount of accrued and unpaid dividends and a price of $0.75 per share. Based on the terms of the TARP exchange agreed to by the Treasury, CPF amended the agreements with its two lead investors to reduce the purchase price of common stock from $0.75 per share to $0.50 per share, resulting in an investment amount of approximately $98.6 million by each investor.

"We are pleased to have accomplished a key component of our company's capital raising initiative," said John C. Dean, Executive Chairman of CPF and CPB. "We believe that moving forward with new capital is in the best interest of all of our shareholders, employees, and customers."

The closing of the recapitalization transaction is subject to raising the remaining $127.8 million of the $325.0 million capital raising plan, the exchange of the TARP preferred stock, regulatory approvals, and other conditions.
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Old 12-25-2010, 06:14 PM   #49
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Looks like they've found the money:
Central Pacific Financial Corp.'s Private Placement is Fully Subscribed
Quote:
Central Pacific Financial Corp. (NYSE: CPF), parent company of Central Pacific Bank (CPB), today announced that it has completed another critical step in its recapitalization transaction as investors have agreed to purchase CPF common stock totaling approximately $127.8 million in its private placement through a combination of commitments and signed subscription agreements. This amount includes investments by certain directors and officers of the company and, together with the $98.6 million to be purchased by each of an affiliate of The Carlyle Group and an affiliate of Anchorage Capital Group, L.L.C., CPF's two lead investors, will provide a total of $325.0 million that CPF is seeking as part of its capital raising plan. CPF announced previously that the U.S. Treasury has agreed to the terms of the exchange of the TARP preferred stock subject to certain terms and conditions and the execution of a definitive exchange agreement.
It's hard to tell who "certain directors and officers" may be, but John Dean is general partner of Startup Capital Ventures and a couple of his newer CPB staff members have also worked at CPB. Maybe the 8K has to provide more detail or we'll end up waiting for the final filing documents.

Note that the conversion price of the recapitalization investors has gone down to 50 cents a share. Meanwhile the stock's trading price has gone from ~$1.40/share before the news to $1.52 before the holiday. I still don't get it.
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Old 01-22-2011, 07:22 PM   #50
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Again, I'm not invested in this stock and I don't even think it's worth the call options, but I'm genuinely confused by the behavior of the share price.

Before the recapitalization announcement hit the streets, the stock price was languishing around $1.40/share. I didn't think that price made much sense while CPF was running around planning to recapitalize at 75 cents a share, and it made even less sense for 50 cents/share.

In the month after the recapitalization announcement, the stock price took off and peaked at about $2.50/share, then sagged back down to $1.80. I suspect a good bit of this was short covering, but we won't know for sure until the January short ratios are out. It's possible that some of this was short-term technical trading, too, for a piece of that 75% price swing. I'm pretty sure it wasn't based on any changes in fundamental valuations.

But this announcement came out yesterday, of course after the market close:
Central Pacific Financial Corp. Plans for Reverse Stock Split and Announces Preliminary Record Date for Rights Offering

Quote:
As previously announced and as part of the recapitalization, the Company intends to conduct a rights offering after the closing of the private placement and the exchange that will allow current shareholders or their transferees to purchase up to $20 million of common stock at the same purchase price per share as paid by the investors in the private placement. The record date for the rights offering, which will be after the effectiveness of the reverse stock split, will be the business day prior to the closing of the private placement and the exchange. Because closing depends upon the timing of satisfaction of all remaining closing conditions, the exact date cannot be determined at this time. As a result, the Company will issue a press release with the applicable record date, expiration date and subscription ratio when that information is known, as well as the date on which the Company expects the certificates evidencing the rights to be mailed.


That might be another reason for the demand to own shares in a crippled bank. As I understand it, people who are shareholders before this (unknown) record date will be able to purchase some (unknown) allotment of shares for 50 cents. So hypothetically a new investor might be willing to pay $1.80/share in the hopes of being able to pay an additional 50 cents/share for a cost basis of $1.15/share which they could then sell at... $1.80/share? For a quick 50% profit. If I was the bank then I'd put some sort of lockup on those shares to prevent just this sort of flipping.

Or maybe not. If the bank is selling bunches of shares to private equity and converting the U.S. govt's TARP shares to common at 50 cents, then why would the share price stay so high? Shouldn't it go down to something like, oh, I dunno, 50 cents?!?

Let me point out that the bank's savior, John Dean, has rescued banks several times before. His last one was Silicon Valley Bank in the 1990s, and that situation might not bear any resemblance to this one. I just don't know if this latest recapitalization was one of his earlier rescue methods. Dean is also a general partner of Startup Capital Ventures, a VC with plenty of funds and friendly investors to tap for the last bits & pieces of this recap. IIRC he's also brought 2-3 SCV partners/employees onto the CPB payroll to help with this rescue.

Soon after this recapitalization closes, I expect the FDIC and other banking authorities to say "Oh, good, all better!" and cancel their consent decree. CPB will eventually start paying a dividend again, and the federal govt will gradually sell off its TARP common stock. Once this sequence of events begins, I expect that the share price will take off again-- completely uncoupled from the reality of revenues (let alone profits) but certainly quite profitable for those who are rushing in where angels fear to tread.

Has anyone seen this situation before? What am I missing?
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Old 01-22-2011, 08:09 PM   #51
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Has anyone seen this situation before? What am I missing?
Politics are playing a role for sure. Plus the "serving the underserved" feeling at the FDIC that, even in these difficult times, is alive and well. I'm thinking the Feds would love to dump this dog but can't.
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Old 02-04-2011, 12:27 AM   #52
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A couple of updates:

First, CPB carried out their 1:20 (reverse) stock split on 2 Feb. (Central Pacific Financial Corp. Announces Effectiveness of Reverse Stock Split) The stock was trading at about $1.50/share before it levered up to $30/share, and 3 Feb it closed at $26.16... the pre-split equivalent of $1.31. Volume was humongous, even despite the number of shares being reduced by a factor of 20-- maybe some of the investors thought they were cashing out, and maybe the shorts have been taking advantage of the volume & volatility to cover. (I wish short reports came out more frequently.) It'll be interesting to see where the price settles out.

Or maybe the volatility was caused by their quarterly report. (Central Pacific Financial Corp. Reports Fourth Quarter 2010 Results) CPB reported losing "only" $2.1M this last quarter ($2.80 per $26 share), which admittedly is far better than anything they've recorded in the last couple years. In general all their numbers got better (or "less worse") but their risk-based and leveraged capital ratios are still not in compliance with the FDIC consent decree-- not even close. However I think that in general the FDIC is willing to stand back and see how the recapitalization goes.

CPB said in the split announcement:
Quote:
As a result of the reverse stock split and elimination of fractional shares, the number of outstanding common shares was approximately 1,529,000 as of the effective time.

Before the 1:20 split, CPB also had 135,000 preferred shares (TARP) outstanding, plus their accrued dividends. The preferred TARP shares (and dividends) are also converting at 50 cents for a total value of $55.8M or 5,580,000 post-split shares. The recapitalization is going to sell $325M at 50 cents/share for 32,500,000 post-split shares. And finally the bank has agreed to sell another $20M at 50 cents/share to existing investors, or 2,000,000 post-split shares. After the recapitalization is finished, outstanding shares will rise from 1,529,000 to ~41.6 million shares.

The initial TARP investment of $130M in 135,000 preferred shares, plus accrued dividends, converted at less than half that amount ($55.8M). I don't see how the government expects to ever get its money back, but this "$74M + dividends loss" is probably much cheaper than throwing the entire bank to the FDIC. So there doesn't seem to be a minimum price for the government to worry about getting its money back like it would with AIG or GM.

The record date has still not been set for the existing shareholders before the recapitalization. If there are 1,529,000 shares outstanding and another 2,000,000 being offered to those shareholders during the recapitalization then existing shareholders could expect to get 1.3 shares for every existing share.

Hypothetically a brand-new "existing shareholder" (before the record date) could start tomorrow at $26.16 with one share, within a month add 1.3 shares at $10/share, and have a total cost basis of $17.03/share for 2.3 shares. Unloading them at $26.16 would be a short-term gain of 54%. (Not including commissions & fees.) However the recapitalization has been rumored to invoke a 180-day lockup for all shareholders. (I don't know how to confirm this.) After the lockup expiry, though, the share value might drop rapidly to $17/share-- especially if the bank is still unprofitable. Frankly there's nothing but emotion, faith, and hype holding the share price above $10 (which, pre-split, was the 50-cent recapitalization price).

Help me out here-- did I just conclude that the most logical investment here for the next 7-8 months would be to short the shares even more? Can a brokerage even borrow shares to short? What happens to an investor who's shorted existing shares before even more shares are issued-- is the short automatically boosted by a factor of 1.3? If shares are subject to a 180-day lockup, does that keep a short from borrowing them? Is it better to short before the record date, or to wait until after the recapitalization? I'm going to presume that there's no reason to be short after the lockup expires... unless the bank isn't making money.

The only things that could reasonably be expected to raise the bank's share price would be (1) the FDIC canceling the consent decree, and (2) the bank turning a profit, and (3) the bank declaring a dividend. I believe all three of those things would have to happen, but if I was shorting then I'd cover as soon as any one of them occurred.

Any other suggestions on how best to invest (long or short) in this situation?

And now that the reverse split has happened, next week I'll start looking at the prices on the options market...
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Old 02-04-2011, 09:13 AM   #53
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Wow Nords sounds like a pretty complicated situation. I think there would be some pretty sophisticated investors involved here. I personally would not feel comfortable with his one.
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Old 02-04-2011, 09:17 AM   #54
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I wonder what Inouye is up to in all this....
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Old 02-04-2011, 09:39 AM   #55
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Wow Nords sounds like a pretty complicated situation. I think there would be some pretty sophisticated investors involved here. I personally would not feel comfortable with his one.
"Complicated". Good word. I hope this is the case-study opportunity of a lifetime. No better time to get comfortable with studying such an "issue-rich environment".

It's tempting, but I don't have any money in this. Yet. Bank of Hawaii went through a milder version of these problems back in 2001. A new executive team took over and a few years later the bank came roaring back with its stock returning 10x. Admittedly CPB's problems are an order of magnitude worse but it would appear that the worst is over.

I don't want to keep seeing these rescue situations over & over for the next five decades and keep wondering whether or not to invest. I'd rather work through the issues now and understand them a little better so that I can assess the next one more quickly. I'm posting about it here in an attempt to capture the emotion of the time so that I can appreciate that this is not as easy as buying some shares and ignoring them for five years. I doubt that I'll ever again have a ringside seat like this.

You've said before that you're comfortable with your asset-allocation plan being overweighted in one area because you know & trust management. Two of the new guys at CPB, John Dean & Larry Rodriguez, are local VCs/investment bankers. Dean in particular has waded in to save a bank at least once before so he presumably has some competence in this area. Hawaii is a very small place to screw around with ethics and these two know that they have a lot at stake on their reputations. I don't know these guys well enough to "trust" them the way I'd trust a shipmate, but I know people who do trust them. I think that they appreciate what they're setting out to do and that they know how to do it. So I think their motivations are aligned with the recapitalization investors and the existing shareholders. For now, anyway.

Unlike my experience with Nortel, CPB has had no whiff of fraud or other illegal behavior. Hubris and incompetence abounded among the old team but no actual laws appear to have been broken. I'm mildly concerned that John & Larry are riding to the rescue once more for old times' sake, like a bad Lone Ranger film, but they've already made their fortunes and their reputations. At this point in their lives I think that they place a higher value on their reputations than their net worth.

The reality is that if they pull CPB's chestnuts out of the flames then their VC firm & investment bank will have more business than they can handle. So while this is an irresistible temptation to them, maybe this really is all about their reputations.

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Originally Posted by Purron View Post
I wonder what Inouye is up to in all this....
Yeah, I hope he's keeping an eye on his reputation too.

It's not as if he's going to need any of his CPB stock for retirement expenses or long-term care. This guy is literally going to keep collecting paychecks until he dies, and Strom Thurmond's record is in jeopardy.

Oh, look, the stock's about to break down below $24/share. Ouch...
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Old 02-04-2011, 09:42 AM   #56
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I appreciate the thread Nords

I can't make any sense out CPF --- it would take me a whole day just to figure out what is going on with the reverse splits and the option to buy at a lower price and the fact that our taxpayers money is the mix

what a complete mess --- I hope it works out for them but I stay far away from anything that takes me more than ten minutes to figure out what is going on
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Old 02-04-2011, 09:55 AM   #57
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OK Nords. I am not giving advice here. If you really know the principals that makes a big difference. I think in my case I know senior management like you would know a shipmate. Incidently , my big position hit an all time high his morning. Good luck if you decide to go in.
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Old 02-05-2011, 11:21 PM   #58
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I think buy about 199 shares so when it finishes its death throes your confidence will remain intact....if it is a 20x in 2 years you can brag about the whale that didn't get away.

Pooches will crap on the grass.
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Old 02-06-2011, 07:53 PM   #59
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Quote:
Originally Posted by Nords View Post
Help me out here-- did I just conclude that the most logical investment here for the next 7-8 months would be to short the shares even more? Can a brokerage even borrow shares to short? What happens to an investor who's shorted existing shares before even more shares are issued-- is the short automatically boosted by a factor of 1.3? If shares are subject to a 180-day lockup, does that keep a short from borrowing them? Is it better to short before the record date, or to wait until after the recapitalization? I'm going to presume that there's no reason to be short after the lockup expires... unless the bank isn't making money.
Regardless of whether or not there are shares to short....why not buy some Put options? I don't know what kind of premiums they'll have (Yahoo! Finance hasn't adjusted the options yet for the reverse split), but they shouldn't be too out of line...and that would limit your loss barring another government handout a white lightning strike of the FDIC lifting their covenant or something crazy like that.
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Old 02-22-2011, 12:54 AM   #60
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More progress.

Central Pacific Financial Corp. Receives Regulatory Approval for $325 Million Private Placement
CPF received Treasury approval to convert their TARP preferred to common and to proceed with the recapitalization. Note that they declared the date of record of existing shareholders to be 17 Feb, the same date that they put out this press release. The lesson learned is that if a company starts talking about determining a record date, by the time they make the decision it's too late for you to jump into becoming a shareholder. Not that anything about this deal would make you want to jump in.

Next week another $20M of shares will be issued at $10/share to existing shareholders, effectively awarding them a warrant of 1.3 shares for every share they currently own. As Purron has noted, Senator Inouye is a founder of CPB from the 1950s and still a major "shareholder of record". Not that he's going to decide to retire on this "windfall".

Central Pacific Financial Corp. Completes $325 Million Private Placement and Exchange of TARP Preferred Stock
The recapitalization closed the next day, 18 Feb, with 32,500,000 common shares issued at $10 and another 5,620,117 common exchanged for the Treasury's TARP preferred. The Treasury spent $130M to get those preferred shares and accumulated another $5M or so in accrued dividends. CPF's stock closed for the weekend at $28.33, so if the Treasury were to be able to sell all of their shares at that price then they'd gross $159.2M. That gives them a nice 15% return over the last couple years, although I doubt it's commensurate with the risk they took. But, hey, your tax dollars are at work here, and it looks like they all survived the experience.

Of course Treasury wouldn't be able to sell all 5M shares at at that price, even if they weren't locked up, and next week the stock price is expected to rapidly go down toward the $10/share at which the bank carried out the recapitalization. Or at least that's the logical expectation. We'll have to see whether the shareholders are that rational.

Quote:
With the completion of the Private Placement, the Company's capital ratios now exceed the minimum levels required by its regulatory consent order and are at "well capitalized" levels under applicable guidelines.

CPF also announced that, nearly a year after they agreed to it, they're finally in compliance with the consent decree. This is the consent decree which sets risk ratios that effectively cripple their competitiveness, so John Dean's next step is to persuade the FDIC to void the consent decree.

I haven't been able to find out the rules for short sellers when their shorted shares are issued more warrants. I suspect that if a shareholder loans their 1000 shares to a short seller, and is then awarded 1.3 warrants with a $10 strike for each of those loaned/shorted shares, then the shareholder can spend another $13,000 for another 1300 shares while leaving the original 1000 shares on loan to the short. At that point it'd be up to the shareholder whether or not to loan the shares to the short for more shorting, but those warrant shares are probably unable to be loaned until the lockup expires.

I think the lockup expires around the middle of August, although nothing has been specified yet.

I'm learning a lot from watching all of this wheeling & dealing, but the fact is that CPB is still shrinking and losing money. They just started foreclosure last week on a $48M loan on a Maui shopping center, and there's no way that the commercial rent will justify a $48M assessment. That's just one of hundreds of millions of dollars of delinquent loans.

Although a tremendous amount of progress has been made, this stock remains a bet of confidence in management's execution skill. What would turn the company's stock price around in a hurry will be three things: (1) the FDIC vacating the consent decree, which would allow CPF to pay dividends again, (2) CPF declaring a real no-foolin' profit, and (3) proving it by restarting their dividend. The first and second could happen during their next quarterly report (end of April). The third could happen shortly after the first gives them discretion to do so again. I suspect that management would very much like it all to happen before the August lockup expires, so I expect this next quarterly report to be full of "one-time" losses in order to let the real window-dressing start for declaring victory in the July earnings report.

I still don't see any reason to buy the stock. I'm not sure there's any assurance to shorting it, either. I'm just going to keep watching & learning. But it might not be a bad idea to buy OTM call options in June or July.
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