A rating agency which less than a month ago downgraded the Bank of Butterfield for an expensive charge to earnings for the second consecutive fiscal year, remains upbeat about the institution's future.

Fitch IBCA said this week the bank was now challenged to follow through on the implementation of proposed restructuring, while making requisite investments in technology and systems so that it can expand in increasingly competitive markets.

The rating agency assigned its rating of `A' to the ten-year $75 million subordinated debt issued by the bank. The senior long term debt of the bank is rated `A' and the bank's short term rating is `F1'.

Butterfield launched ten-year floating rate notes in the international bond markets, attracting additional capital to ensure the bank remained strongly capitalised. The bond issue has led to applications for the notes to be listed on the Bermuda and Luxembourg stock exchanges.

Fitch IBCA said Butterfield's bank had focused in recent years on generating fee income from banking, global custody, trust and investment and corporate administration services provided through its Bermuda and overseas operations.

The bank has an extensive retail presence in the Cayman Islands, and a presence in Guernsey and Hong Kong.

Fitch IBCA said: "Butterfield's performance in recent years has been hurt by the sluggish local economy, fairly high investment spending, a series of modest problems, and some strategic miscues, but the bank has generated good increases in fees and, excluding restructuring charges in 1998, its results were reasonable for the year.

"Butterfield's balance sheet is inherently strong and very liquid. The tier 1 capital ratio has declined, due to the weak results in recent periods, a share buy back programme, and the charge for retiree benefits, but the total capital ratio is still expected to approximate 13.6 percent at fiscal year-end June 30.

"Fitch IBCA concludes that the bank remains adequately capitalised, particularly in relation to the low-risk nature of its balance sheet.'' Less than a month ago, the rating agency downgraded the bank from `A plus' to `A' after it took another substantial hit on its earnings. Last year, the bank took a $20.6 million charge for trading losses in London and the closure of London and Singapore operations -- $17 million for the London problems alone.

This June the bank announced more was needed to stem the flow of London losses, and took another charge of $33 million.

Another rating agency, Thomson Bankwatch, while stating at the core that the bank's position remained strong, downgraded Butterfield's senior debt rating from `AA minus' to `A plus'.