Butterfield seeks balance with acquisition
Butterfield Bank will achieve greater balance of its business and balance sheet across three jurisdictions by acquiring a banking business in the Channel Islands.
It has reached an agreement to acquire ABN AMRO (Channel Islands) Limited in a £161 million ($208 million) cash deal. The business is part of ABN AMRO Group, a Dutch bank. The deal is expected to close in the third quarter.
Michael Collins, Butterfield’s chairman and chief executive officer, said the acquisition fitted with the bank’s strategy. He said: “It spreads our business and balance sheet more evenly among the three jurisdictions, Cayman, Bermuda and the Channel Islands.
“At closing deposits in the Channel Islands will represent about 41 per cent of our deposit base, and about 19 per cent of our earnings.”
The revenue mix from Butterfield’s three primary jurisdictions would shift from today’s 55:30:11 percentage split between Bermuda, Cayman, and Channel Islands and UK, to a projected split of 51:27:19 across those three jurisdictions.
Mr Collins, responding to a question during Butterfield’s conference call with investors, said: “We are kinda there, where we want to be. Our focus is to grow it [the ABN AMRO business]. It is both private banking and financially intermediary business, which are right up our alley.”
Yesterday, Butterfield reported a profit of $52 million, or 96 cents per share, in the first three months of the year. That was up from $44.2 million, or 79 cents per share, for the same period a year ago.
The bank’s core net income was $51.7 million for the first quarter, up from $45 million, year-on-year.
Non-performing loans increased from $48.7 million at the end of 2018, to $53.8 million at the end of March, which represents 1.3 of total gross loans.
Speaking about the first quarter performance, Mr Collins described it as “solid” and said it was “underpinned by our capital-efficient fee businesses, well-positioned balance sheet and focused cost management”.
He added: “We are prepared to meet the challenges of the current interest rate environment through expense control and disciplined capital management.”
He said Butterfield has completed “onboarding” the remaining Deutsche Bank clients in the Channel Islands, following the acquisition of Deutsche Bank Global Trust Solutions last year.
He added: “While deposit balances have fluctuated, we have been pleased to see periods with overall balances in excess of $1 billion from this transaction.”
Butterfield’s cost income ratio was 60.1 per cent. Mr Collins mentioned the decision to close the Rosebank banking centre and drive-through teller service in Hamilton.
He said: “We continue to focus on efficiency and last week we announced the streamlining of group operations through voluntary early retirements, the closing of one of our four Bermuda bank branches, which resulted to the reduction of 11 positions in Bermuda. We are continuing to work on alternative employment opportunities for the employees affected by the branch closure.”
In addition, regarding the acquisition of ABN AMRO, Mr Collins said: “This significant acquisition is a Channel Islands banking business similar to our existing banks in Guernsey, Jersey, Cayman and Bermuda. Acquiring ABN AMRO (Channel Islands) is a unique opportunity for Butterfield to grow accretively and gain market share in the Channel Islands.”
He said the transaction diversifies Butterfield’s balance sheet and risk profile, from a geographic perspective, “in a high quality market in which we have decades of experience”.
Butterfield is making the acquisition through its wholly-owned subsidiary, Butterfield Bank (Guernsey) Limited. ABN AMRO’s business and staff in the Channel Island will integrate in to Butterfield’s Guernsey operations and operate under the Butterfield name.
ABN AMRO was established in Guernsey 35 years ago, and provides banking, investment management and custody products to trusts, private clients and funds. At the end of 2018 it had $2.9 billion in deposits and $3.5 billion in assets under management and custody.
Mr Collins said the two businesses know one another well having operated in the Channel Islands for many decades, in Butterfield’s case for 45 years. He said: “It is a pretty low risk acquisition, because it’s the same client base, same systems, that sort of thing. It will give us significant market share, we will be a real competitor and, with our new bank in Jersey, our presence in the Channel Islands will allow us to grow organically.”
• Disclosure: the writer owns shares in Butterfield Bank.