Concern over the potential for a prolonged economic downturn has prompted the Bermudian government to provide Butterfield Bank with a $200 million guarantee on an issue of preference shares made to shore up the bank’s capital resources.
The Bank of Butterfield ended 2008 in the black and declared a quarterly dividend of $0.08 a share. However, according to Bermuda’s Finance Minister Paula Cox, banks in the Atlantic territory have been required to raise capital levels ‘should there be a sustained and severe downturn in economic activity.’
Mrs. Cox told the Bermuda House of Assembly Friday that all of that island’s banks are meeting or exceeding capital requirements. But she said the monetary authority believed an additional capital buffer was sensible.
Here’s how the agreement works: Bermuda will support Butterfield’s offering of preference shares, guaranteeing both the principal and any dividend payments made. Also, Bermuda has agreed to buy any of those shares that are not purchased by private interests.
In exchange, Butterfield agreed give the government 10-year warrants to buy some $4.3 million in shares, about four per cent of the shares issued by the bank. The bank will also pay the Bermudian government a set fee of one per cent per year on the preference shares issued to private investors.
Butterfield also stated Friday that it would cut its fourth quarter dividend on common stock to preserve capital.
According to Mrs. Cox, Butterfield had exhausted options to raise capital in the private sector without getting any form of public assistance.
‘We are appreciative of the government’s support of our capital raise in a market that, even for a bank as highly rated as Butterfield, would have made it difficult to raise capital privately,’ Butterfield Chairman of the Board Robert Mulderig said Friday.
The move was described as a precautionary measure against future market downturns.
In the Cayman Islands, for 2008, Butterfield reported a net income of $34.3 million, a significant drop from the $56.6 million it reported in 2007. A statement issued by the bank Friday revealed that most of the decline was due to falling interest rates that led to a drop in net interest income.
In Cayman, Butterfield’s net interest income declined by 22 per cent last year. Non-interest income dropped nearly nine per cent.
The bank’s total Caymanian assets, however, jumped $600 million to total $3.3 billion due to a strong growth in customer deposits.