FOUR CNMI banks rejected an offer to merge with Bank of Saipan, according to an independent regional financial advisory firm.
Columbia Financial Advisors, Inc., in its report to acting Commerce Secretary Fermin M. Atalig, said the merger proposal was offered by temporary receiver Randall T. Fennell, and it involved the purchase of the bank’s assets and stocks.
Fennel, in an interview, said Bank of Hawaii, First Hawaiian Bank, Bank Pacific and Citizens Security Bank of Guam were approached for a possible merger.
The four banks rejected the offer upon learning Bank of Saipan’s status, Fennell said, adding that the other banks did not reply.
Columbia said there are four “strategic alternatives” that the CNMI government, through the receiver, can pursue:
• Closure and liquidation. The bank will be closed and depositors are paid off over time. “Since the depositors are uninsured, the depositors will receive less than 100 cents on a dollar of deposits if a loss occurs as a result of the liquidation,” Columbia said.
• Government forbearance. The government will provide cash or non-cash subsidies to “recapitalize” the bank and improve its performance.
• Good Bank-Bad Bank. Create a good bank with performing loans and deposits then sell the good bank to a third party. The government and/or shareholders would retain the bad bank with the non-performing loans.
• Management Replacement. The receiver and the CNMI may replace management with a new team to improve performance so that Bank of Saipan can be sold at a more reasonable price and/or regain profitability.
A financial analysis of each option is necessary to see which is the “most financially favorable,” Columbia said.
Its report said that the closure and liquidation option is the “fastest” but will “obviously cause the loss of jobs.” It is also not the right time to liquidate the bank as the receiver would likely obtain purchasers with “bargains” in mind, the report said.
The government forbearance option has the appeal of retaining the management team and employees but it will put the CNMI in the banking business, Columbia said.
It added that the “good bank-bad bank” option is achievable after Hong Kong & Shanghai Banking Corp. “has completed the sale of its Saipan operations.”
According to Columbia, the combination of the good bank-bad bank, government forbearance and management replacement options may prove to be the “best alternative” since it will allow the receiver to place an experienced banker as Bank of Saipan’s president.
Columbia also conducted a financial analysis of the bank. The balance sheets of the bank as of April 30 depicted “declining cash.”
The four months of operation this year also showed a decrease in investment securities, stable loans, an increasing loan loss reserve and decreasing deposits.
