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Bank shares dive on takeover talks

Published:Wednesday | March 3, 2010 | 12:00 AM

Bermuda's oldest bank, NT Butterfield, said on Tuesday that it was in talks with institutional investors to raise a 'significant' amount of new capital shortly after the Bermuda Stock Exchange suspended trading of its common shares.

Rumours of a takeover have swirled around Butterfield - which has branches in Barbados and the Cayman Islands - in recent days as its share price dropped below US$3. It was trading at US$2.85 on Monday.

"In response to inquiries, the Bank of NT Butterfield & Son Limited said today that it is in discussions with prominent institutional investors regarding a significant capital-raising transaction that would maintain Butterfield's capital ratios well in excess of regulatory requirements," the bank said in a statement.

The 150-year-old bank, the island's second largest, has made write downs of some US$200 million over the past 18 months as the value of investments tied to US mortgages lost value.

The bank's full-year and fourth-quarter results are due to be published later this week.

Ripe for takeover

According to Jeremy Dyck, an investment adviser with LOM Securities (Bahamas) Ltd, Butterfield's current share price makes it ripe for takeover - and it would be a "good fit" for one of the top Canadian banks.

Dyck, who has been following the bank for several years, said in an interview with the
Royal Gazette
newspaper: "I would speculate that at least a couple of the Canadian banks should be interested at those prices.

"Obviously they'd want to take a look under the hood and see what they're holding, particularly in the CMO (collateralised mortgage obligation) portfolio."

Other asset-backed securities, as well as Butterfield's loan book, derivative book, asset management and community-banking operations would also come under close scrutiny, he added.

Dyck said Butterfield would probably fit best with one of the Canadian banks that have operations in the Caribbean such as CIBC/FCIB, Scotiabank, or Royal Bank.

Bermuda largest bank, the Bank of Bermuda, was founded in 1889 and was bought by British banking giant HSBC in 2004.