division by setting up a new corporate finance department, entitled Financial Advisory Services (FAS).

And the division has launched its first product -- an investment facility which enables local residents with US dollars to invest in Bermuda-based international insurance entities.

The Bank has set up newly-formed Bermuda Investors Ltd. (BIL), which is incorporated in the Cayman Islands, and is offering shares to Bermuda residents through a private placement.

BIL will invest in the common shares of three Bermuda-based reinsurance companies and in the limited partnership interests of two limited partnerships.

As sponsor of BIL, the Bank of Bermuda will pay $US2.8 million for 2,800 of BIL's Class A Voting Shares, representing 20 percent of the shares being sold in a private offering of BIL's stock.

The Bank is selling an 80 percent interest in BIL or 11,200 Class B Non-Voting Shares, valued at US$11.2 million, to selected investors who must invest a minimum of US$50,000.

The shares are not being offered for sale in the United States or the United Kingdom.

The new product would allow members of the public, albeit those with above average wealth, to own shares in insurance-related entities they would otherwise have been unable to afford, said Mr. Peter Mellor, the Bank's chief investment officer and managing director of its investment division.

"The minimum investment in BIL is US$50,000 whereas if you want to participate in these shares directly you would normally have to make a minimum investment of between US$5 million and US$10 million, which is usually only affordable to corporations.'' The private offering of BIL's stock opened on December 1 and closes on January 21, 1994, with shares being offered on a first-come, first-served basis.

Mr. Mellor said: "The Bank of Bermuda believes that there is a unique opportunity to earn attractive returns by participating in the restructuring of the insurance industry, on a global basis, through Bermuda-based investment facilities.'' He added: "The purpose of Bermuda Investors Ltd. is to provide access, for selected investors, to the realignment of the insurance industry and the ability of the sponsors of the underlying companies to capitalise on the resulting opportunities.'' Mr. Michael Collins, FAS' deputy manager, added: "Bermuda Investors Ltd. is a single purpose, closed-end investment company created specifically to invest in the privately-placed equity securities and partnership interests of three reinsurance companies and two insurance limited partnerships.'' The names of these insurance-related entities being invested in are not being released at this stage by the Bank.

Including the companies that the limited partnerships will themselves invest in, a shareholding in BIL will give an investor an interest in up to 23 insurance-related companies, said Mr. Collins.

Both Mr. Mellor and Mr. Collins pointed out that the investment in BIL represented "a long-term, illiquid and high risk investment'' but said it offered "a potentially attractive return''.

The Bank's new FAS division will initially be run by Mr. Collins and officer Mr. Robert Jones, who joins the division on February 1, 1994.

They will report to Mr. Charles Vaughan-Johnson, the Bank's executive vice president of international; Mr. James Masters, general manager of corporate banking, and Mr. Mellor.

The financial goal of FAS is to achieve capital gains and earn placement, underwriting and advisory fees through participation in the following range of corporate finance transactions: private equity investments; private equity funds; domestic venture capital; private placements; initial public offerings; mergers and acquisitions; and asset securitisation.

Mr. Mellor, who has just joined the management council of the Bermuda Stock Exchange, said the Bank of Bermuda will underwrite its first IPO of a local firm in February.

Many local companies had expressed an interest in raising extra funds through stock offerings, he said.

"If you look around Bermuda, there are a lot of private families who have largely financed their capital requirements through growth and debt but very little in the way of equity,'' said Mr. Mellor.

"We believe the time has come to take these new services we are offering and go and see these companies and talk to them about their future.

"When I went to Hong Kong in 1972, it was a small island full of family-owned businesses, much like Bermuda,'' he said. "But these families did not hesitate to raise money through equity when we went to them. The key is to maintain a balance between keeping control and raising new funds to build their business.'' Mr. Collins said there was "a lot of interest'' from local companies seeking to merge with other companies.

"Companies are looking to become bigger, whether by raising money through the sale of equity or from mergers,'' he said.

The formation of Financial Advisory Services is the last major step in the overhaul of the Bank of Bermuda's investment division.

Mr. Mellor said: "We've put in place what in the UK is known as a corporate finance capability.

"The investment division has been gathering pace for some time now. The Financial Advisory Services department is the final piece in the plan.'' He said the Bank of Bermuda was "trying to create a bridge between the on-shore and off-shore worlds''.

The Bank had recognised that it had to change to take advantage of emerging investment opportunities in Bermuda and greater competition, he said.

"The levels of competition in this field in Bermuda are going to increase and increase rapidly,'' said Mr. Mellor.

Responding to recent publicity surrounding the departures of several senior Bank staff, including some in the investment division, Mr. Mellor said: "We will have to raise the standards of service and performance, certainly in the investment division and throughout the bank, in order to take on the competition. Not everyone's going to enjoy it.

"Whatever things you see or hear, it's largely as a result of ever increasing needs for higher standards of service and performance.

"You either work here and agree that we have to increase levels of performance or you leave.'' Mr. Michael Collins, left, and Mr. Peter Mellor.