Posted on: Saturday, October 14, 2000 Regulators seize financially troubled Bank of Honolulu

Q&A on the Bank of Honolulu seizure Profiles of Bank of Honolulu, Bank of the Orient

By Frank Cho, Glenn Scott and Michele Kayal Advertiser Staff Writers

State and federal banking regulators seized the financially strapped Bank of Honolulu last night and immediately turned the banks insured deposits over to Bank of the Orient in San Francisco. What customers should know Customers with questions can call: 808-543-3700.

The Kaneohe, Kapiolani and Manoa branches will open for business today as branches of Bank of the Orient. The Bishop Street location will open Monday as a Bank of the Orient branch.

All checks drawn, up to available account balances, on the former Bank of Honolulu will be honored by the Bank of the Orient.

All interest, paid on current insured deposit accounts, will remain the same.

Customers with certificates of deposit may be asked to enter new agreements or may make a penalty-free, early withdrawal. The small, state-chartered Bank of Honolulu, with about $66.9 million in assets, was closed by Hawaiis commissioner of financial institutions, and the Federal Deposit Insurance Corp. was named receiver.

"The Bank of the Orient purchased the assets and liabilities of Bank of Honolulu, and we will open (this) morning, business as usual," said Henry Homsher, Bank of the Orients director of Hawaii operations.

Homsher said the Bank of Honolulus three branch offices in Manoa, Kapiolani and Kaneohe will reopen today as Bank of the Orient branches under normal operating hours. The Bank of Honolulus main office on Bishop Street downtown will open Monday as a Bank of the Orient branch, he said.

Takao Sato, chief executive of Bank of Honolulu, declined to comment last night.

The Bank of Honolulu has struggled in recent years. In 1998, the FDIC issued a cease-and-desist order against Bank of Honolulu, saying the bank had insufficient capital. According to its most recent filings with the FDIC, losses at the bank widened to $1.1 million during the first six months of this year, from $785,000 during the same months of 1999. For all of 1999, the bank lost $2.3 million. At that rate, the bank could have run out of cash by the middle of next year, some bank analysts said.

Bank officials and regulators sought to reassure customers last night.

"This closing is a very unfortunate and isolated case which does not reflect on the health of other financial institutions," said Lynn Wakatsuki, Hawaiis commissioner of financial institutions, who ordered the bank closed.

This is the first time banking regulators have seized a Hawaii financial institution since the U.S. comptroller of the currency closed Mauis Bank USA in 1995 and turned over its deposits to Hawaii National Bank.

Banking regulators typically seize banks that they believe are facing imminent failure.

Assisted by state sheriffs deputies, regulators were posted at Bank of Honolulus downtown branch yesterday at the close of business. At 6:42 p.m., they entered the bank.

The failed Bank of Honolulu had total deposits of $59.5 million in about 5,900 accounts, including about $2.2 million that exceeded the FDICs deposit insurance limit of up to $100,000 per account.

Stacey Simpson, FDIC senior ombudsman, said the first step in the changeover will be to use Bank of Honolulu assets to pay creditors and uninsured depositors.

The FDIC said it will make a dividend payment of 65 cents on the dollar to uninsured depositors for their proven claims. The payment is based on anticipated recoveries from the sale of assets. The FDIC said it estimates the failure will cost the Bank Insurance Fund $2.5 million.

After creditors and uninsured depositors are addressed, Simpson said, the FDIC will pass on remaining assets to Bank of Honolulu shareholders. "There is a possibility," she admitted, "that there will not be a full return."

The failure is the fifth this year of a financial institution backed by such bank insurance funds and the sixth of a company insured by the FDIC.

Simpson said the federal agency closed the bank and sought a purchaser in a confidential bidding process designed to maintain the stability of the assets.

The Bank of the Orient will pay the FDIC a premium of $1 million for the right to assume the Bank of Honolulus insured deposits. The Bank of the Orient also will pay the FDIC an additional $855,000 above the FDICs estimated value to buy about $52.2 million of the failed banks assets.

Officials huddled in the Bank of Honolulu's downtown branch shortly after regulators took it over last night. Jeff Widener  The Honolulu Advertiser The Bank of Honolulu also has been affected by the bankruptcy case of its former chairman, Sukamto Sia. Sia filed for Chapter 11 bankruptcy protection in November 1998 after being charged in Las Vegas with writing $8 million worth of bad checks to casinos. In the bankruptcy filing, he claimed $296.4 million in debts and $9.3 million in assets before the case was converted into a Chapter 7 liquidation.

Sia, 42, is now living in a Honolulu halfway house as he awaits a federal trial on bankruptcy fraud charges. FBI agents arrested him in August as he met with creditors in Honolulu.

Sia, who stepped down as the banks chairman two years ago, had a 76 percent stake in the bank. The stake, Sias biggest single known asset, was awarded to a trustee for Sias bankrupt estate who had been attempting to sell the shares to repay creditors.

Bank of the Orient executives last night said that with the failure of the bank, those shares have no value.

"He (Sia) is extremely upset and distressed about what has happened," William McCorriston, Sias attorney, said last night. McCorriston said Sia blames bankruptcy trustee Guido Giacomettis management of the bank during the bankruptcy proceedings for the banks seizure last night.

"Mr. Sias creditors are the big losers in this because there will be nothing to repay them with now," McCorriston said.

Giacometti said the banks poor financial condition when he took over made it difficult to sell the shares and repay Sias creditors.

"I have done the best job I could to market the banks shares, and have been unable to find a buyer," Giacometti said. "It was clear, even from the beginning, that to get this bank going was going to be difficult."

Federal officials are reviewing the bank, and the FBI said bank records would be reviewed as part of an investigation into possible criminal wrongdoing.

The Bank of Honolulu has about 54 employees. Homsher said the Bank of the Orient expects to bring in its own managers immediately, and will interview current employees for their positions. The company will try to retain as many Bank of Honolulu employees as possible, Homsher said.

"We have been talking about this for a long time," said Mike DeCenso of Ewa Beach, whose wife, Kristy, is a 10-year employee of the bank. "I am very concerned about how this will affect her job."

Bank of the Orient chief financial officer Philipp Frings said through a spokesman last night that the bank does not have any employees established in Honolulu yet, but expects to soon. He declined to say how much the bank takeover will cost the Bank of the Orient.

Rodney Shinkawa, executive vice president of the Hawaii Bankers Association, was optimistic about the fate of Bank of Honolulu employees.

"They need these people," he said. "The more things they can keep the same are in the best interest of the customer."

Ultimately, he said, customers may perceive the transition as relatively seamless.

"When you come in, they might give you a new passbook with the new name of the company on it, but as a customer, your deposits are insured, and youll generally be able to continue financial dealings without any disruption," Shinkawa said.

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-- Carl Jenkins (Somewherepress@aol.com), October 15, 2000