About a decade ago, maybe less Jim discussed Hawaii Electric and their ownership of American Savings Bank, third largest bank in Hawaii. HE was considering selling the bank or spinning it off at the time but decided against it. I bought a few (fortunately, very few) shares of HE so I could stay on top of any news about selling and now of course after the Maui fire those shares have cratered ( sorry for the Hawaii pun).
But this article in WSJ caught my eye. Article notes American Savings bank is now roughly valued at about $8 per share. HE closed today at $9.66e suggesting the bank now makes up about 82% of the share value.
Not sure what happens in a bankruptcy. Will HE try to sell off the bank. Can they sell the bank if the parent company is in bankruptcy (to be clear HE has not declared bankruptcy yet but might be headed that way). Is there an opportunity here for cigar rear end ( Apparently TMF rules won’t allow the use of but*) investing?
Any thoughts are appreciated.
David, this was floating around in my head, too, after the catastrophe there.
I don’t have my finger on the pulse of this situation, but it’s funny that WSJ says/implies that the value of the overall company is backstopped by the bank. It doesn’t take much imagination to foresee that authorities could force a sale of the bank to pay for the parent company’s debts, rather than force taxpayers to foot some/all of the bill. If the overall company is worth negative money (i.e., bankrupt and still owes plenty more), then selling the bank is simply throwing money into that crater and even if the sale comes at a nice valuation, it’s easily conceivable that it doesn’t come close to paying off the debts/future lawsuits, etc. So it could easily just be a zero, depending on how authorities want to play ball. Yes, the bank has value, but what it does with any sale proceeds determines the value of HE stock.
In addition, selling the bank (perhaps via IPO) may simplify the overall situation, raise needed money, bail out the utility (somewhat), free the bank from the utility so that it can do its own thing, etc. It would ultimately be better for the bank.
I simply don’t know the law well enough to know what authorities can do, if, as the article states, the bank is sufficiently legally remote from the utility. But it’s not hard to imagine one scenario where the whole thing is a near zero or close enough to not argue the point. And until that uncertainty is cleared up, I’m not interested.
Thanks for raising it!
The moral of the story is utilities are not safe boring investments. They pay paltry dividends and carry significant bankruptcy risk, it is just one accident away.
This story was never about owning a utility, which I would agree tend to be less safe than advertised.