Out here in the middle of the Pacific Ocean, it’s tempting to view the financial crises in Europe as a kind of theater: Fun to look at, but not all that relevant to our daily lives. But the financial turmoil in places like Greece or Italy have a more direct impact on Hawaii than you’d think. That’s mostly because the global credit market has really blurred the political boundaries that used to separate economies. Now, when the market burps in Athens, trouble starts in Paris and London.
Hawaii is no different. Case in point: First Hawaiian Bank, the state’s oldest and largest financial institution, and Hawaii’s most profitable company of any kind, is actually a French bank. As a wholly owned subsidiary of PNB Paribas, France’s largest private bank, First Hawaiian has an unwelcome front row seat at the spectacle that is Europe’s financial crisis. And we all should be paying attention.
That’s because PNB Paribas is really in the thick of the trouble, particularly the Greek credit crisis. In fact, many French financial institutions are deeply invested in the Greek economy, and several have already had to write off enormous losses as a result of the Greek bailout. And, among French banks, PNB Paribas has the most exposure, with more than €5 billion in Greek sovereign debt. Earlier this week, the bank acknowledged that it holds €2.3 billion in Greek bonds that mature before 2021. As a result of the most recent Greek bailout, PNB Paribas has taken a 21 percent bath on those bonds.
And Greece may just be the tip of the iceberg. Like all major international banks, PNB Paribas has financial interests around the world, especially in the Euro zone. As Ireland, Spain, Italy, and now France all struggle to deal with their own debt crises, European banks will be faced with some crucial choices. How do they reserve for troubled loans? What assets do they keep? Where do they allocate scarce resources? And because these international financial institutions are so deeply intertwined, the answers to these question will have impacts around the world.
So, what will all this mean for Hawaii’s largest bank? For years, First Hawaiian’s high profit margins and healthy balance sheets have persuaded PNB Paribas to let the bank operate almost like an independent company. And, although First Hawaiian has sometimes touted the advantages of being part of what Bloomberg News calls the largest bank in the world, most local customers probably don’t know they’re depositing their money in a French bank. So Hawaii has benefited from the best of both worlds: the resources of an international conglomerate, and the comfort of a local bank.
But will it remain that way if PNB Paribas continues to suffer major losses due to the troubles in the Euro zone? What if Greece needs another bailout? What if larger economies, like Spain or Italy, falter on their debt? What if the credit rating of France itself is downgraded like that of the United States? Finally, what happens if Euro zone countries cut their losses and shelve the Euro entirely? Will the giant PNB Paribas continue its hands-off attitude with the little profit engine in the Pacific?
Don’t bank on it.