Central Pacific Financial Corporation, parent company of Central Pacific Bank, made big news here last week when it announced the appointment of a “turnaround specialist” as its new executive chairman.

The news reporting was pretty upbeat, and so I was somewhat surprised when a friend who has one foot in the financial world expressed strong concerns about the bank’s financial situation. His comment prompted me to take another look.

The “turnaround” announcement appears to have been timed to blunt the impact of a downgrade of the company’s debt by Fitch Ratings, which expressed reservations about the bank’s ability to avoid a regulatory takeover. Judging from local news coverage of the Fitch downgrade, CPF’s media strategy appears to have worked, at least locally. The Advertiser, for example, only noted the downgrade in a business brief.

A preliminary proxy statement filed with the SEC last week appears to suggest some of the credit for the success of the company’s media strategy may go to Rick Blangiardi, general manager of the combined operations of KGMB and KHNL, the man at the reins of Hawaii News Now following last year’s controversial three-way broadcasting merger, who also serves as a director of CPF and CPB.

According to the proxy statement:

Mr. Blangiardi’s extensive knowledge and experience of public media has been a tremendous resource to the Company’s and Bank’s communications, advertising and public relations areas. Mr. Blangiardi is well-versed with public company issues and as general manager of numerous television stations is highly experienced at managing all aspects of a business operation. Mr. Blangiardi’s natural ability to motivate and inspire others is a positive force for both the Board and management.

Blangiardi could not be reached for comment yesterday.

Chris Conybeare, attorney, media critic, and president of Media Council Hawaii, said he would be concerned about the potential conflict between Blangiardi’s role as CPF director and broadcast station manager.

“We would be concerned that Mr. Blangiardi’s position on the Central Pacific Financial and CPB boards could color the reporting done by Hawaii News Now on the financial condition of Central Pacific and the current problems it faces,” Conybeare said.

Media Council Hawaii has filed a legal challenge asking the Federal Communications Commission to block the deal which consolidated the news operations of KGMB, KHNL, and KFVE, resulting in layoffs and, according the MCH, a significant loss of diversity in local news coverage.

Here’s an example of how Blangiardi’s stations covered the Central Pacific developments last week. It’s all pretty upbeat. There’s no disclosure of Blangiardi’s ties to CPF/CPB. And I couldn’t find any reporting on the Fitch rating downgrade, although other news outlets also downplayed the news.

Blangiardi has been on the board of directors of CPF since 2003 and directly owns 6,922 shares of company stock, along with options to acquire an additional 4,301 shares, according to the latest proxy statement. Just two years ago, that stock might have been worth as much as $175,000. Today, following more than a year of bad news for CPF, it would be worth just around $20,000.

Blangiardi was paid $36,867 by Central Pacific in 2009 for attending meetings of the board of directors and its committees, plus an additional $8,000 in stock options. He recently took over as chair of CPF’s Compensation Committee, usually a seen as a powerful position because it controls executive pay.

In addition, the proxy statement disclosed other relationships. Blangiardi was among directors who “either directly and/or indirectly through companies in which they have a business interest or affiliation,” had loans or “deposit, trust, investment and/or other banking accounts” with the CPB, or served on boards of nonprofit agencies that “received monetary donations” from the bank.

The Star-Bulletin’s Erika Engle reported earlier this year that KGMB saved one of a few “highly coveted” Superbowl advertising spots for Central Pacific Bank, and the two have also cooperated in charitable drives such as CPB’s “Ready to Learn”.

Federal Election Commission records show Blangiardi contributed $4,500 to the CPB political action committee since 2004. Other directors also contributed.

While there’s no evidence Blangiardi tilted his own station’s reporting or had any direct role in helping CPF spin the difficult financial news in its own favor, his position with Central Pacific has certainly put his own reporters in a very awkward position, and the public is left to speculate on whether personal or corporate financial interests have shaped his station’s news coverage.

The discussion in the Fitch downgrade announcement includes quite guarded language.

For example, Fitch notes that if not quickly solved, Central Pacific’s problems could lead to a regulatory takeover of Central Pacific Bank, and the company’s situation “has caused its auditor to raise questions as to the company’s ability to continue as a going concern.”

While Fitch took note of CPF’s “recovery plan”, it then said:

While a successful implementation of the company’s recovery plan could have positive rating implications, Fitch believes there is a limited probability that the recovery plan will be successful in meeting regulatory requirements.

In other words, Fitch characterizes the odds of a turnaround occurring soon enough to satisfy regulars as only a “limited probability”.

In the event of a default on its outstanding debt, Fitch estimates that holders of certain types of the bank’s debt have less than a 10% chance of recovering their investments.

That’s certainly a much more troubling financial picture than the “turnaround” spin given the story locally.

While CPF has acknowledged that it will not meet the deadlines set in a December consent order by the FDIC for certain remedial actions, it didn’t specify which specific conditions remain unmet.

In addition to requirements to raise capital in order to improve several financial ratios, which have drawn the most attention, the consent order also included a number of other conditions, none of which appears to have been followed by Hawaii media although they are quite suggestive.

For example, according to the company’s 8K report filed with the SEC describing the FDIC consent order, the company was required to:

·
· Comply with the interest rate limitations on solicitation and acceptance of brokered deposits under the FDIC’s rules and regulations and submit to the FDIC and the DFI within 60 days, a written plan to eliminate its reliance on brokered deposits;

· Within 30 days, the Bank must eliminate or correct any violations of law;

· Within 60 days, the Bank must develop or revise and implement a written plan addressing procedures and operations in the information technology area;

· Within 60 days, the Bank must revise and implement a written trust plan addressing trust operations;

[emphasis added]

It remains unclear what past practices are referred to by these conditions imposed by the FDIC or whether any or all of them have been met.

UH Professor Gerry Kato noted that debate over the involvement by media executives in community affairs is not new. Former Advertiser owner Thurston Twigg-Smith and Star-Bulletin publisher Phil Gialanella got their share of criticism for getting into potential conflict of interest situations. Blangiardi’s situation may be different because his position with Central Pacific involves a personal financial interest in the company as well as creating community ties for station owner Raycom, his employer.