This is the full text of a statement made by Finance Minister Paula Cox to the House of Assembly this morning on the Bank of Butterfield.

Mr. Speaker,

I rise this morning to inform this Honourable House of a significant development in Bermuda’s financial sector. Yesterday, the Government of Bermuda committed to assist The Bank of N.T. Butterfield & Son Limited in raising additional capital as a precautionary measure during this period of economic challenge in the global economy and indeed in Bermuda.

In the prevailing market conditions, the Bermuda Monetary Authority has required banks and depository institutions in Bermuda to raise their capital levels should there be a sustained and severe downturn in economic activity. The Authority advises that all Bermuda’s banks and depository institutions are already exceeding their existing capital requirements, which are set above international minimum requirements, but that it believes an additional capital buffer is a sensible precautionary step.

The Government of Bermuda supports the Authority’s guidance as it is vital to sustain confidence and stability in the banking sector of any nation.

Butterfield’s Bank approached the Ministry of Finance after it had exhausted options to raise capital in the private sector without any form of public assistance. That is a regrettable reality in banking sectors around the world in these times of financial and economic turmoil.

Banks in many jurisdictions, including the United States, the United Kingdom, Europe and Australia have resorted to different forms of public sector assistance to raise their capital levels.

The Ministry of Finance engaged Rothschild Inc. as financial advisors to assist the Ministry in its evaluation of the options for public sector assistance to the Bank. Rothschild confirmed that market conditions have been very challenging since fourth quarter of last year and banks in many jurisdictions have been unable to raise capital without some form of public sector support.

The Bermuda Monetary Authority has also advised the Ministry of Finance that in the absence of a private sector solution providing assistance was a proactive and precautionary measure that would ensure the safety and soundness of Butterfield Bank.

Therefore, in the national interest and in the true spirit of public-private partnership, the Government of Bermuda has agreed to support the bank’s offering of a $200 million preference share issue by guaranteeing the principal of, and dividend payments on, the preference shares to be issued to private investors. In addition, Government has committed to purchase any preference shares from the offering that are not subscribed by private investors.

In making this commitment, Government was cognisant of its role in preserving the stability and resilience of the Bermudian economy and protecting bank depositors. Government was also conscious of the obligation to protect the interests of taxpayers. In return for this commitment, the Bank has agreed (i) to issue warrants to the Government to purchase approximately 4.3 million shares, (ii) to pay Government a guarantee fee of 1 per cent per annum with respect to the preference shares taken up by private investors, and (iii) to pay a higher coupon rate on any preference shares subscribed by the Government.

Mr. Speaker, the Bank of N. T. Butterfield Bank is a local bank with both domestic and international clients - valued consumer and commercial clients. The Bermuda Government wishes to provide tangible support to the eight hundred plus employees of the Bank and their families. Also the Government of Bermuda is committed to use its reasonable best efforts to protect bank depositors generally.

The Government Commitment is to ensure that no later than June 30, 2009, the Bank will have raised, or will have entered into definitive agreements to raise, from third parties or the Government an amount of qualifying Tier 1 capital equal to US$200 million in the form of preference shares with a Government of Bermuda guarantee on principal and dividends.

Mr. Speaker, the Bermuda Government guarantee is seen to have real add-on value. With the Bermuda Government guarantee the offering can realistically be marketed in the US public markets to buyers of sovereign debt from countries comparable to Bermuda.

This unprecedented level of support by the Bermuda Government is to underscore our confidence in the continued sustainability and viability of the Bermuda economy and the Bank.

Mr. Speaker notwithstanding the Government Commitment to assist the Bank of Butterfield, there are some conditions to the Government support. There are checks and balances to protect the significant taxpayer investment. This is with respect to ongoing oversight, monitoring and reporting requirements of the Bank. This extends also to preventing any gratuitous or extraordinary payments to executive officers of the Bank.

There are real opportunities. Prospective investors who wish to buy Bermuda and to invest in a Bermuda-Government guaranteed investment will have an opportunity to do so. Though as President Obama has stated recently while with Prime Minister Gordon Brown: "I'm absolutely confident that credit is going to be flowing again, that businesses are going to start seeing opportunities for investment. They're going to start hiring again. People are going to be put back to work."

President Obama added boldly that he was not overly fixated on the day-to-day gyrations of the stock market stating: "It bobs up and down day to day, and if you spend all your time worrying about that, then you're probably going to get the long-term strategy wrong.'

Honourable Members will recall that Government indicated its readiness to move swiftly to counter any threats to strategic sectors of our economy. This action to support the Bank is important for the reputation and stability of our jurisdiction, for our people, for the Bank’s employees, its depositors, its clients and customers, and its shareholders who are 70 per cent Bermudian.

The Bank’s core business lines continue to perform well and in Government’s view, the Bank will continue to generate more than sufficient earnings to cover its obligations and commitments. This is an important factor because many banks in other jurisdictions have continued to experience difficulty despite government support because the profitability of their core businesses has deteriorated.

The action that Government has taken is measured and prudent as it keeps Government’s obligations within the medium term financial limits set in the 2009-2010 National Budget.

We are living in extraordinary times and therefore extraordinary but purposeful actions will be required to maintain our collective confidence as a community and to map the way towards a full economic recovery.

One thing that is clear: there are no simple and quick-fixes in this economic climate. I do not want anyone to be under any illusions in that regard as the path from economic rescue to economic recovery can be complex. However the independent regulator, the Bermuda Monetary Authority, the Bank of Butterfield Limited, the Ministry of Finance and the Government of Bermuda have carefully considered the multi-faceted issues and the regulatory, policy and national interest, both the upside and the downside. There are always different policy options and choices. Ultimately we determined that the actions I have now outlined set out a credible and workable road map for the way forward.

Mr. Speaker in closing, I should like to commend all those who have toiled tirelessly, sometimes long into the night on this jewel of a project. I should like in particular to acknowledge and thank the Cabinet and my Parliamentary colleagues for their considerable collective efforts and contributions in seeking to also provide thought leadership. Their ideas, even when they were varied, converged around the commitment to do what was in the best interest of Bermuda and her people. That is all that anyone can ask: that in making decisions we do our best, we act with principle and that we do what is right.

The measures announced today by the Government and the Bermuda Monetary Authority ensure that Bermuda’s banking system is in a strong position to withstand a severe economic downturn and still remain highly capitalized. This means that depositors and other users of the banks are better protected from the current financial crisis.

That is one step and it is a positive show of confidence by the Government but the work continues to ensure that we remain optimistic about the opportunities to ensure the continued success and stability of our economy. Bermuda as a reputable international financial centre deserves no less and our pledge is to continue to keep the people in the picture.

Thank you Mr. Speaker.