HONOLULU (HawaiiNewsNow) - Central Pacific Bank, fourth largest banking institution in Hawaii, has found investors to pump $325 million into the bank, recapitalizing it with a cushion against loans going bad.
The bank announced Wednesday afternoon in Honolulu that private investors, not named at this time, have committed to providing $127.8 million, in transactions that should be approved by regulators in time for the transactions to close during the next quarter.
The $127.8 million comes on top of $98.6 million invested by each of two investment funds, Carlyle Group and Anchorage Capital. Those deals were first announced over the summer and were later approved by regulators.
What the investors get for their money is stock, which dilutes the value of other shareholders' stock in the short run but can raise it in the long run as the bank satisfies regulators and the markets that it has a good cash cushion.
Central Pacific Bank lent aggressively in California under the leadership of Clint Arnoldus, who had come to Hawaii from California, only to have some of the loans go bad after the 2008 Wall Street meltdown sent California real estate and construction into a tailspin.
Arnoldus retired and non-executive chairman Ron Migita took the reins as CEO, selling off many of the California loans to refocus the bank on its core Hawaii business.
When federal regulators judged the bank to be undercapitalized, they refrained from seizing it and gave the bank breathing room to recapitalize. Migita now retired, succeeded by John Dean, who had run Silicon Valley Bank and was known as a turnaround specialist.
All banks are required to have a cushion against loan losses. How much money needs to be on hand depends on how much money has been lent and how many loans are in danger of going bad.
A capitalization gap can be closed by selling off shaky loans or by raising more capital. It also helps if an improving economy reduces the risk of loans going bad. Central Pacific this year enjoyed improvement in each of these three ways.