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Bank of Hawaii (BOH) Eyes Capital Raise Amid Bond Losses
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Bank of Hawaii (BOH - Free Report) is seeking $165 million in capital amid the ongoing burden of elevated interest rates. The capital raise follows a challenging year for the company. Its bond investment soured with rising interest rates, leaving it with significant ‘unrealized’ losses.
BOH is seeking capital through depositary shares, an investment structure that makes larger preferred shares more accessible to ordinary investors by handing them a chunk of ownership. The bank announced the pricing of a public offering of 6,600,000 depositary shares, each representing 1/40th ownership interest in a share of its 8.000%. The net proceeds from the issuance and sale of the depositary shares, after deducting underwriting discounts and commissions and before the payment of estimated expenses, will be nearly $162 million.
Due to its lower-paying bonds and a few significant regulatory ratios that are lower than those of its competitors, the bank's profitability has suffered.
According to S&P Global Market Intelligence data, the bank's leverage ratio is 7.62%, which is lower than the peer banks' average of 9.93%. Raising further funds would bring that figure closer to its peers. It most likely provides reassurance to management and the board. It does so without diluting the current shareholders of the bank's common stock.
According to regulatory statistics, Bank of Hawaii is sitting on a sizable pool of bonds whose value declined more than 14% as a result of the significant increase in interest rates that started in 2022. The bank appears to be in very good health based on its primary capital ratios, but when those unrealized bond losses are taken into account, the picture becomes worse.
The company's common equity tier 1 ratio is 11.5% as of Mar 31, 2024, but drops to 4.4% after considering the impact of the bond losses.
Peter Ho, Bank of Hawaii's CEO, stated in April that the bank was focused on growing capital as regulators look to require higher capital at banks.
In the past year, BOH’s shares have gained 37.9% compared with the industry’s 30.8% rise.
In March 2024, New York Community Bancorp, Inc. (NYCB - Free Report) closed the previously announced transaction to raise $1.05 billion from a group of investors, including Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners.
Per NYCB management, "The completion of this major equity raise demonstrates the confidence these strategic investors have expressed in the turnaround currently underway at the company and allows us to execute our strategy from a position of strength. Our Company enters this next phase with an enhanced balance sheet and liquidity position."
Following the $1-billion cash infusion announcement, the New York Community’s rating view has been changed to ‘review for upgrade’ from ‘review for downgrade’ by Moody’s Investors Service — a division of Moody’s Corporation (MCO - Free Report) .
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Bank of Hawaii (BOH) Eyes Capital Raise Amid Bond Losses
Bank of Hawaii (BOH - Free Report) is seeking $165 million in capital amid the ongoing burden of elevated interest rates. The capital raise follows a challenging year for the company. Its bond investment soured with rising interest rates, leaving it with significant ‘unrealized’ losses.
BOH is seeking capital through depositary shares, an investment structure that makes larger preferred shares more accessible to ordinary investors by handing them a chunk of ownership. The bank announced the pricing of a public offering of 6,600,000 depositary shares, each representing 1/40th ownership interest in a share of its 8.000%. The net proceeds from the issuance and sale of the depositary shares, after deducting underwriting discounts and commissions and before the payment of estimated expenses, will be nearly $162 million.
Due to its lower-paying bonds and a few significant regulatory ratios that are lower than those of its competitors, the bank's profitability has suffered.
According to S&P Global Market Intelligence data, the bank's leverage ratio is 7.62%, which is lower than the peer banks' average of 9.93%. Raising further funds would bring that figure closer to its peers. It most likely provides reassurance to management and the board. It does so without diluting the current shareholders of the bank's common stock.
According to regulatory statistics, Bank of Hawaii is sitting on a sizable pool of bonds whose value declined more than 14% as a result of the significant increase in interest rates that started in 2022. The bank appears to be in very good health based on its primary capital ratios, but when those unrealized bond losses are taken into account, the picture becomes worse.
The company's common equity tier 1 ratio is 11.5% as of Mar 31, 2024, but drops to 4.4% after considering the impact of the bond losses.
Peter Ho, Bank of Hawaii's CEO, stated in April that the bank was focused on growing capital as regulators look to require higher capital at banks.
In the past year, BOH’s shares have gained 37.9% compared with the industry’s 30.8% rise.
Currently, Bank of Hawaii carries a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Capital Raise Action Taken by Other Banks
In March 2024, New York Community Bancorp, Inc. (NYCB - Free Report) closed the previously announced transaction to raise $1.05 billion from a group of investors, including Liberty Strategic Capital, Hudson Bay Capital, and Reverence Capital Partners.
Per NYCB management, "The completion of this major equity raise demonstrates the confidence these strategic investors have expressed in the turnaround currently underway at the company and allows us to execute our strategy from a position of strength. Our Company enters this next phase with an enhanced balance sheet and liquidity position."
Following the $1-billion cash infusion announcement, the New York Community’s rating view has been changed to ‘review for upgrade’ from ‘review for downgrade’ by Moody’s Investors Service — a division of Moody’s Corporation (MCO - Free Report) .