American Savings Bank will become a stand-alone operation within 12 months after being connected for more than a quarter-century in an unusual pairing with the state’s largest utility provider.
ASB Hawaii Inc., parent company of American Savings, will be spun off into an independent company once Hawaiian Electric Industries Inc. is sold to Florida-based NextEra Energy Inc.
"Our ability to establish American Savings Bank as a new, independent public company reflects the strength of the bank’s business, its strong market position and its talented team of employees," said Connie Lau, HEI’s president and chief executive officer and chairwoman of the boards of American Savings and Hawaiian Electric Co. Inc. "This plan also enables HEI shareholders to participate in the upside potential of American Savings Bank following the spinoff. We are confident that American Savings Bank is well positioned to thrive into the future."
HEI acquired the bank in 1988 for $113.1 million.
When asked whether American Savings would be seeking a possible merger or sale with another financial institution, Rich Wacker, president and chief executive officer, said: "We’re going to operate just as we are. We’ll spin out as an independent company and be the same ASB as we are today."
"We told our team that it’s business as usual," Wacker added. "We may pick up a few teammates for things like the public company duties (such as taxes for the bank)."
The bank was founded in 1925. It is the state’s third-largest bank with $5.4 billion in assets, more than $4 billion in deposits, 56 branches and 1,200 employees.
The bank earned $39.5 million through the first nine months of this year, down 13 percent from $45.4 million in the year-earlier period. In 2013, American Savings reported net income of $57.5 million, down 1.9 percent from $58.6 million in 2012.
"That combination of a utility and bank, that’s always been a bit unique and so typically what happens is you have two different entities and you sort of struggle with where to best allocate capital," said Nashville, Tenn.-based banking analyst Brett Rabatin of brokerage firm Sterne Agee. "You have different people clamoring for the same dollars, so eventually it makes sense to separate the two things. It’ll be a good thing for the Hawaiian market over time for that spinoff to happen. It’ll change things a little bit, I’m sure. It’s something that probably needed to happen at some point anyway. It’s not like a shocking thing."
American Savings’ separation from HEI is a good move for both the shareholders and the community because it "unlocks value," said retired banker Walter Dods, former CEO of First Hawaiian Bank.
"When you split them up you just have a lot more focus on the specific industry," said Dods, who was chairman of Alexander & Baldwin Inc. when it split with subsidiary Matson in 2012. "The fact of the matter is at the parent level you have to decide where to best employ your capital. We in Hawaii are always capital short. We need money as a community so we want a healthy financial industry. Having a separate American Savings is good for the community."
Under the planned spinoff, HEI shareholders will receive stock in American Savings. The transaction is expected to be tax-free for shareholders.
ASB Hawaii’s estimated value is approximately $800 million, or $8 per share.
Dods predicts that after the separation, American Savings — which currently has limited lending options as a savings and loan institution — will move to become a full-service commercial bank, opening the way for additional revenue streams.
"The competition is good in Hawaii. You have good, healthy banks," Dods added. "I can’t speak for the banks, but I’m sure they welcome good, hard competition. By spinning off, it doesn’t mean they’ll gain market share. They’ve got to go and earn that every day in the marketplace."
