Buried deep within Hawaiian Electric Industries' (HEI) recent earnings call transcript lies a potentially explosive detail, one seemingly overlooked by analysts fixated on the ongoing wildfire litigation. While the world focuses on the company's liability in the Maui tragedy, a quiet financial earthquake may be brewing, ready to reshape HEI's future and send shockwaves through the market.

The detail? The unassuming mention of American Savings Bank's (ASB) tax basis valuation: a staggering $680 million. At first glance, this might seem insignificant, a mere accounting footnote amidst the drama of wildfire lawsuits and legislative battles. But consider this – ASB, a subsidiary of HEI, has been whispered to be on the market. If sold, this $680 million figure becomes more than a footnote; it transforms into a potential tax liability time bomb.

The crux of the matter lies in the potential discrepancy between ASB's book value and its sale price. While the company hasn't publicly disclosed ASB's book value, industry whispers suggest a figure significantly lower than the $680 million tax basis. Let's hypothesize, for the sake of argument, that ASB's book value is around $500 million. A sale at anything above this book value, a highly probable scenario given ASB's strong performance and the attractive Hawaiian banking market, would trigger a significant taxable gain.

For instance, imagine ASB fetches a sale price of $600 million, a modest premium in today's market. The taxable gain would be a hefty $100 million ($600 million sale price minus $500 million book value). Applying the current corporate tax rate of 21%, HEI could face a tax bill of $21 million. Now, scale this up to a sale price closer to the $680 million tax basis, and the potential tax burden explodes, potentially jeopardizing the very liquidity the company is fighting to preserve.

"Tax Liability Calculation Example: ASB Sale Price: $600 Million Hypothetical ASB Book Value: $500 Million Taxable Gain: $600M - $500M = $100 Million Corporate Tax Rate: 21% Potential Tax Liability: $100M * 0.21 = $21 Million"

Potential Tax Liability vs. ASB Sale Price

The following chart illustrates how HEI's potential tax liability could increase based on the sale price of ASB, assuming a hypothetical book value of $500 million and a 21% corporate tax rate.

This potential tax liability raises several critical questions. First, is HEI fully aware of this potential burden, and have they factored it into their strategic considerations for a potential ASB sale? Second, how will this tax liability affect the ultimate sale price of ASB? Will potential buyers demand a discount to offset this future tax burden? And finally, how will this financial bombshell impact HEI's already precarious liquidity situation?

The company's silence on ASB's book value only amplifies the uncertainty. While understandable given the ongoing litigation, this lack of transparency raises red flags. Investors and analysts, accustomed to scrutinizing wildfire liabilities, might be missing the forest for the trees. This $680 million figure, quietly revealed in the transcript, could hold the key to understanding HEI's future, more so than the daily ebb and flow of wildfire lawsuits.

The potential implications are far-reaching. A significant tax burden could force HEI into a corner, pushing them to accept a lower sale price for ASB or forcing them to seek alternative sources of liquidity, further complicating their financial maneuvering. It could also impact their ability to invest in much-needed wildfire mitigation efforts, a critical priority for the company and the state.

This hidden tax liability, a silent specter looming over HEI's future, demands attention. As the company navigates the choppy waters of wildfire litigation and legislative uncertainty, this $680 million bombshell could prove to be the most explosive development of all. It's a story no Wall Street Journal reader should ignore.

"Fun Fact: American Savings Bank (ASB) has a long history in Hawaii, dating back to 1925. It was originally founded as a mutual savings and loan association to help local residents achieve homeownership."