http://www.pacbiztimes.com/articles/wk_051301c.cfm

Pacific Coast Business Times
Proudly Serving Santa Barbara, Ventura and San Luis Obispo Counties
June 08, 2001

Slatkin woes take toll on 2 major banks

By Tony Biasotti
Special to the Business Times
The bankruptcy of Earthlink co-founder Reed Slatkin could bring multi-million
dollar losses to a pair of California banks.

The two largest debts listed by Slatkin in his bankruptcy filing on May 1 were a $5 million loan from Pacific Century Bank and a $4 million loan from Union Bank of California.

Slatkin, a Santa Barbara resident, declared more than $100 million in debts in his bankruptcy filing. Press reports put the total amount owed at $300 million or more. The Securities and Exchange Commission reportedly is investigating the matter.

In a telephone interview, Allan Landon, Pacific Century's vice chairman and chief financial officer, told the Business Times that if Slatkin's debt is not recovered, the loss would represent around 10 percent of the bank's quarterly provision for loan loss.

"There's no good $5 million loss," Landon said. "We have loans to borrowers in a number of circumstances, but we think we have enough [loan loss provision] to cover them."

In the quarter ended March 31, Pacific Century set aside $52.5 million for loan losses, nearly double the amount set aside in the fourth quarter of 2000. "The increased provision was due to the recognition of net loan losses totaling $97.7 million related to exiting several higher risk credit relationships," the earnings report stated.

"We've made a concentrated effort to increase our credit risk," Landon said, citing the increased loan loss provision as one part of that strategy. Pacific Century is based in Los Angeles but its largest unit is the Bank of Hawaii.

Slatkin's debt could prompt Pacific Century to further increase its loan loss provision, though how much won't be known until the bank's next earnings report, Landon said. "We will consider [Slatkin's debt] and lots of other circumstances," when deciding how much to allocate for loan losses in the future, he said.

Slatkin's $5 million debt represents less than 0.5 percent of Pacific Century's $1.2 billion in capital, and will not affect the bank's day-to-day operations, Landon said. "It doesn't happen every day, but a loss of that size doesn't put us in a lot of trouble," he said.

Pacific Century is divesting its operations in California, where Slatkin obtained his loan, to concentrate on Hawaii and the West Pacific, according to an April 23 Business Wire release. The move includes cutting more than 1,000 jobs and closing all U.S. mainland offices, except one in Arizona, and all Asian operations, except in Japan. Pacific Century Financial Corp. also plans to change its name to that of its largest subsidiary, Bank of Hawaii.

Representatives of Union Bank of California, Slatkin's second-largest creditor with a debt of $4 million, could not be reached for comment. Union Bank of California is the second-largest bank based in the state, and Slatkin's debt represents just 0.65 percent of the bank's provision for loan loss.

Slatkin resigned from Earthlink's board of directors last month. A civil suit filed April 13 by John Poitras, an associate of Slatkin's living in the Bay Area, alleges that Slatkin defrauded him out of $15 million by promising stock market returns of 50 percent to 60 percent through a computer day-trading program.

Slatkin's May 1 bankruptcy filing was incomplete, as he failed to provide statements of his property, income and expenditures; he also failed to provide a complete statement of his debts, instead listing only his 20 largest unsecured, nonpriority claims.

In a response to Poitras' lawsuit, Slatkin declared assets of $16.7 million, primarily in real estate and Earthlink stock. According to U.S. Bankruptcy Court documents, he has until May 16 to file the required documents, or risk having his bankruptcy dismissed.