How Hawaiian Telcom, Hilo Hattie and Central Pacific Bank Rebounded from the Brink
Turning around three of Hawaii’s biggest companies
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Central Pacific Financial
No. 31 on the Top 250
John Dean, who became CEO of Central Pacific Bank in March of 2010, points out that not all turnarounds are bankruptcies. Nor do they always have the same causes. Troubled banks, for example, may have different symptoms than failing utilities or retailers. Dean estimates that "of all the banks that have failed over the last 100 years, something like 97.5 percent of these failures were driven by poor asset quality." That's certainly the case for CPB and its parent, Central Pacific Financial Corp., which were buffeted by bad real estate investments on the Mainland.
The cure? Like Storfer, Dean talks about controlling costs and improving efficiencies. Like Yeaman, he believes strongly in building teams and fostering the right corporate culture. But, for a bank, much of the process is simply about attracting capital. In fact, Central Pacific only recently emerged from a consent decree with the federal government that required the bank to improve its balance sheet by adding hundreds of millions of dollars to its reserves. Dean, like Storfer, is a turnaround veteran – this is his fourth troubled bank – so he understands that he was hired, in part, because of his ability to attract this kind of capital. That's a role he'll likely play as long as he's at Central Pacific.
But, as Dean points out, sometimes the success or failure of a turnaround is based largely on forces outside the company's control. Hilo Hattie, for example, may have arranged financing in advance of bankruptcy, but those plans crumbled with the rest of the economy. Dean notes that banks are just as subject to these market forces. "In banking, the market is critical," he says. "Are the markets in your favor or are they going against you? If the real estate prices in the market you're serving are headed south, it's a much more difficult problem, because, in effect, every quarter you've got to mark your book to market. You reevaluate it, and guess what? It drops another 5 percent." That means you need still more capital. It's a death spiral.
"Fortunately," Dean says, "by the time I got here, that market was starting to level off. It was still bad, but that's much better than a falling market. That was in our favor."
The other market that was critical for Central Pacific's turnaround was the market for banks themselves. "We needed to raise private equity to refinance and recapitalize the bank," Dean says. "A lot of private equity money had already been raised in the market, originally to acquire and refinance banks that were failing or that regulators had seized. By the time I arrived here, though, the markets were shifting and there was a growing interest in recapitalizing banks."
So, while Dean will probably get the credit for Central Pacific's turnaround, he's a little more circumspect: "You need a little bit of luck," he says. "And, to be honest with you, we had things going in our favor."
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