Butterfield seeks to allay fears

The Cayman Islands branch of Butterfield Bank insists its financial position remains strong , despite its parent company taking a hit in the investment market.

Last week, Butterfield Bank in Bermuda announced an initiative to bolster its resources through a public-private $200 million partnership with the Bermudian government.

Managing director of Butterfield Bank in Cayman, Conor O’Dea, said this week that the local bank operation saw a ‘record net income’ in 2008. However, that income includes a portion of the $115.5 million sale of Butterfield’s controlling interest in its fund administration business; essentially a one-off deal made last year.

Net recurring incomes were $27.4 million in 2008.

Also, Mr. O’Dea confirmed the Butterfield Bank group overall lost some $151 million in investments during the 2008 financial year, mainly due to failures in the US sub-prime mortgage market.

At a local level, Mr. O’Dea said there was also some concern about investment risk in US sub-prime loans, but that Butterfield Cayman’s exposure was nowhere near as large as the parent company’s.

In the end, he said those challenges did not prevent the Caymanian bank operation from recording a profit.

‘We have strong net income, and we have a very liquid balance sheet,’ Mr. O’Dea said Tuesday. ‘Butterfield in Cayman had a very good year.’

He acknowledged that rumours had been spread around Grand Cayman about there being ‘a run’ on Butterfield with nervous depositors and investors seeking to make large withdrawals. But since Friday morning, when the announcement about the $200 million backing from the Bermudian government was made, Mr. O’Dea said deposits held steady at some $3 billion.

Net outflows from the bank totalled $60 million from Friday morning through Tuesday.

‘That’s nothing,’ Mr. O’Dea said. ‘Our branches have had business as usual since Friday morning. Transactions have been normal. There is no pressure on the bank from depositors.’

He pointed out that the Cayman Islands operation’s loans only amounted to 16 per cent of total deposits and that Butterfield in Cayman holds 67 cents of every dollar of depositors’ funds in cash or cash equivalents.

The Bermudian government’s agreement to guarantee a $200 million preferred stock offering made by Butterfield’s parent company also puts the Cayman Islands operation in a stronger position, Mr. O’Dea said.

‘Essentially in Cayman, we meet all the capital requirements,’ he said. ‘In the event…say our loan portfolio deteriorated, in that case, we’d benefit. It’s a bit like having a capital fund to access at need.’

The stock guarantee was presented by Bermudian government officials last week as a ‘sensible precaution’ in case matters worsen in world financial markets.

The Bermuda government guarantee was credited with an improvement in both Butterfield Bank’s customer deposit rating and the betterment of its long term debt rating from A- to A. The ratings were both issued by Fitch’s investor’s service.

Last week Standard and Poor’s changed Butterfield’s outlook from ‘CreditWatch Negative’ to ‘CreditWatch Developing.’

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