A shareholder has gone public with concerns about the role of the Canadian Imperial Bank of Commerce at Butterfield Bank and whether CIBC and another large shareholder, the Carlyle Group, are having too much say and “directing” management.Together CIBC and Carlyle own almost 40 percent of Butterfield.In a letter to Butterfield, said to be on behalf of a shareholder group, Dark Knight Strategies Ltd’s biggest concern appeared to be whether the non-CIBC and Carlyle directors on the board of Butterfield are acting in “protecting the interests of all shareholders, including the minority shareholders”.Dark Knight also raised concerns about agreements with CIBC for a line of credit, and Carlyle for investment advice, that incurred almost $20 million in fees. Fees incurred for the line of credit facility were $7.4 million, while Butterfield agreed to pay Carlyle $12 million over three years for its services.Butterfield Bank yesterday responded to Dark Knight’s concerns, saying: “Butterfield asserts that the Bank and its Directors adhered to all appropriate corporate governance protocols and applicable regulations with respect to structuring and executing the transactions in question.“Further, the Bank has made the required and appropriate disclosures regarding the details of these transactions in our Shareholder communications and at the Annual General Meeting of Shareholders in 2011.”CIBC is the Canadian bank that contributed $150-million to the recapitalisation Butterfield in March 2010 after it was overwhelmed by bad loans and mortgage-backed securities. CIBC also invested $22 million indirectly through a private equity fund, which has since been reduced to $19 million, or 2.7 percent interest.Other investors included the Bermuda Government Pension Funds, as well as the Wellcome Trust, Julian Robertson and Goshen Investments LLC.A Butterfield spokesman said yesterday CIBC owned an 18.64 percent stake in Butterfield, while Carlyle also owned an 18.64 percent stake, both as of December 31.CIBC, Carlyle, and other institutions invested a total of $550 million in Butterfield. The bank’s board of directors now include a Carlyle managing director, a CIBC senior executive vice-president and the managing director of CIBC World Markets.In the letter to Butterfield last September, a copy of which The Royal Gazette obtained yesterday, Bermuda-based shareholder Dark Knight Strategies asked a series of questions of CEO and president Brad Kopp and chairman Robert Mulderig. The letter was cited in an article yesterday in Canada’s Financial Post.In response yesterday, Butterfield also said: “Butterfield acknowledges that it received a request for information regarding certain corporate transactions completed in 2010 and 2011 from Dark Knight Strategies Ltd in September 2011. Butterfield responded directly to the query, noting that the provision of more detailed information to one shareholder would be contrary to the Regulations of the Bermuda Stock Exchange.”Dark Knight said its intention was that all shareholders be provided written answers to its questions.On Dark Knight’s concerns about the Carlyle agreement, Butterfield responded that as stated in its 2010 Annual Report, Effective 1 October 2010, the bank entered into an investment advisory agreement with Carlyle.“Under the agreement, Carlyle has agreed to provide, for remuneration of $12 million over three years, Balance Sheet management advisory services to the Bank including, but not limited to, development of investment strategies for consideration by the Bank’s Asset and Liability Committee; Balance Sheet simulation analysis including interest rate sensitivity, economic value at risk, interest at risk and stress testing; detailed investment portfolio reporting; cash flow and net interest income forecasting; deposit behaviour analysis and pricing strategies; and assistance with credit advisory and workout strategies.”Dark Knight was also concerned about fees on the line of credit with CIBC, writing: “As stated in the 2010 Annual Report, ‘the Bank entered into a commitment letter for a $500 million line of credit at market rates with CIBC. The fees incurred for the line of credit facility were $7.4 million. As at 31 December 2010 the credit facility had been reduced to $300 million and remains undrawn. The Bank incurs facility fees of $200,000 per month.’“As stated in the 2011 quarterly report, ‘The Bank cancelled the credit facility effective 1 March 2011.’”Dark Knight said it wanted to know who initiated the credit facility and “what was the analysis that led to any requirement for such a facility?”In addition, the shareholder asked: “Please explain why the facility was reduced so substantially in such a short time period.“Did Butterfield seek pricing from other banks on an equivalent facility?“What amount of the $7.4 million fee was rebated to the Bank upon reduction and ultimate cancellation? If there was no return of fees, why not and on what basis was such an arrangement agreed to? Was the Board of Directors fully informed about all aspects of this facility prior to closing? Were directors associated with CIBC recused?”On Butterfield’s reported investment/balance sheet management advisory agreement with Carlyle, Dark Knight asked: “As stated in the 2011 2nd quarterly report, ‘The Bank entered into an asset liability management agreement with Carlyle Investment Management LLC, an affiliated company of the Carlyle Group with an effective date of 1 October 2010. Per the agreement the Carlyle Group has agreed to provide balance sheet management advisory services to the Bank for an annual fee of $4 million for a three-year period.’“Please indicate what specific activities Carlyle is undertaking described as “balance sheet management advisory” ...“Was this function put out to tender with other parties? Did Butterfield seek pricing from other institutions on an equivalent basis? Was the Board of Directors fully informed about all aspects of this facility prior to closing? Were directors associated with Carlyle recused? Were legal opinions sought and obtained?”Dark Knight also had concerns about Butterfield’s sale last year of its stake in fund administrator Butterfield Fulcrum.The bank said in its second-quarter report that last February it entered into an agreement with an investor group comprised of BV Investor Group partners Glen Henderson and Tim Calveley to dispose of its 36 percent equity interest on a diluted basis in Butterfield Fulcrum Group Ltd. The sale was completed in the second quarter of 2011 and resulted in a gain on sale of $3.1 million.Dark Knight said under the terms of the agreement, BV Investor Group paid down BFG’s existing debt and revolving credit facility with the Bank and combined their overall funding requirements with another related entity, FORS Ltd, whereby the total loan facilities post-disposition, on commercial market terms, is $45.1 million.“A Bank non-executive director is a minority shareholder of approximately three percent of FORS,” Dark Knight’s letter stated. “As at 30 June 2011, $42.6 million of the facilities were drawn.“In addition, the Bank has guaranteed to purchase services from BFG, on commercial market terms, for three years at minimum agreed revenue levels of $5.5 million, $5.0 million and $4.5 million per annum. It is anticipated, given anticipated levels of services provided to the Bank by BFG, that there will be no shortfalls to the minimum agreed revenue levels. In the event there is a shortfall, the Bank is required to pay 38 percent of the shortfall.”Dark Knight asked the bank: “Please identify the non-executive director referenced. Please confirm that that non-executive director was not involved with either the origination of the transaction nor any aspects of the negotiation. Was the Board of Directors fully informed about all aspects of this facility prior to closing?”Dark Knight’s final concern was to do with bank chairman Mr Mulderig’s purchase of Longtail Aviation.“It was reported in The Royal Gazette on June 17, 2011 that the Chairman of the Bank, Mr Robert Mulderig, purchased Longtail Aviation,” Dark Knight wrote.“Was any of the funding for this purchase provided by Butterfield Group? If so, under what terms was it provided? If so, was the Board of Directors fully informed about all aspects of this transaction prior to closing? If so, was Mr. Mulderig recused?”Butterfield responded: “As a matter of policy, the Bank does not disclose the details of any customer’s transactions with Butterfield unless required to do so by law.”