Butterfield results draw a line under restructuring

Bank of Butterfield reported a loss of $207.6 million in its full year 2010 results, mainly resulting from its strategy to restructure and de-risk its balance sheet and corresponding non-recurring losses.

These included $113.8 million realised losses from the sale of asset-backed securities and $60.5 million recorded impairments of structured investment vehicles in the first quarter of 2010. In addition net provisions of $31.8 million had to be made for large hospitality related loans in Bermuda and the Bahamas and restructuring costs of $12.4 million.

On a normalised basis net income was $14.8 million for 2010 compared with $21 million in 2009.

Last year Butterfield raised $520 million of new capital from Carlyle Group, CIBC and a number of other investors. Additionally the group raised $130 million in a rights offering in June.

The busy year continued with the introduction of a new group executive management, including a new CEO, CFO, chief risk officer and head of group audit, and the exiting of non-core businesses in Hong Kong, Malta and the Bahamas.

Most recently in February 2011, Butterfield sold its remaining stake in fund administrator Butterfield Fulcrum.

Building a strong foundation

Brad Kopp, Butterfield’s president and CEO said “2010 was a year of building a strong foundation amongst challenging economics, starting with the successful capital raise bringing in new investors and an over-subscribed rights offering to our historical investor base. The resultant strong capital base and good liquidity position allowed us to finalise the process of ridding the balance sheet of problematic assets and putting realisable values on remaining assets,” he said.

“This leaves us with a strong capital base to withstand continued uncertainty in the global economic outlook and to support growth as our economies recover.”

Olivier Sarkozy, who led the investment in the bank on behalf of The Carlyle Group, said that “while unfortunate, the losses realised over the course of the past fiscal year represent the culmination of the balance sheet restructuring that was necessary to put the bank back on a path of prudent risk management and sustainable growth, as was envisioned at the time of the recapitalisation.

“We are pleased with the progress the bank has made in this regard and happy that the bank’s results are consistent with, if not slightly better than, our original projections,” Mr. Sarkozy noted.

On a normalised basis revenues from operations were down from $332.1 million in 2009 to $321.3 million in 2010.

At the end of 2010 Butterfield had a tangible common equity ratio of 5.8 per cent up from 0.9 per cent a year earlier, a total capital ratio of 21.6 per cent and a tier 1 capital ratio of 15.7 per cent.

In Cayman Butterfield investment losses, lower net interest income and increased operating expenses led to a net loss of $4.6 million in 2010, down from a net income of $9.5 million in 2009.

Strong liquidity

Conor O’Dea, Butterfield’s chief executive vice president, Caribbean, said that “despite continued pressures from historically low interest rates, Butterfield’s strong liquidity has allowed us to invest more of our asset base in high quality government-backed securities which yielded improved margins in Q4 and, combined with the relative stability of our fee income, positions us well for 2011.

“We anticipate further growth and development in the service and technology arenas in 2011 and 2012, as we implement a strategic programme to modernise and harmonise systems and processes group-wide,” Mr. O’Dea said, adding that Butterfield’s largest jurisdictions Bermuda and Cayman will see this year the introduction of new core banking systems, which will allow the bank to enhance services and expand its product range.

He further noted the recent appointment of a new Head of Group Asset Management who is charged with coordinating and growing the bank’s asset management business internationally.

“A stronger asset management function will complement our fiduciary and private banking services, strengthening and enhancing our wealth management offering overall,” Mr. O’Dea said.

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Mr. Kopp
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