The price that is being paid out to Bank of Bermuda shareholders with its pending sale to HSBC is more than fair, investment advisors at local firm Bermuda Investment Advisory Services said this week.

The bank announced on October 28 that it was being bought out by multinational banking giant HSBC for $1.3 billion, with investors getting a pay-out of $45 per share.

BIAS spoke to the pricing and other elements of the bank deal to an audience of about 50 clients attending its quarterly briefing on Wednesday, which included an investment outlook for the fourth quarter but focused on HSBC?s purchase of the bank.

In the weeks since the deal was announced, there have been shareholder rumblings ? both locally and overseas ? from those disgruntled with what they say is an under-valued sales price.

But yesterday, BIAS executives gave the opinion ? backed up by numerous ratio comparisons ? that not only was $45 a fair price, it may actually be a generous offer as it reflects a 16.3 percent premium over the average closing price of the bank?s shares in the three months previous to the transaction being announced.

Mark Melvin, BIAS partner and senior investment analyst walked through elements of the transaction with a look at the deal from two perspectives, that of HSBC and as a Bank of Bermuda shareholder. He concluded that the deal was a good one for HSBC and that the bank?s financial performance did not add up to it deserving a premium valuation.

Mr. Melvin is no stranger to banks with nearly 30 years experience in business and finance, including a five-year stint auditing banks in London. He got a birds-eye view of the Island?s banking sector when he was appointed to the Bermuda Monetary Authority in 1985 as regulator of the financial services industry. He was later seconded to the Ministry of Finance as a financial advisor, but while at the BMA he was responsible for the initiation and implementation of many of the regulatory standards that govern Bermuda?s banking sector today.

In looking at the bank?s performance, Mr. Melvin made a comparison of various areas ? including the bank?s return on its assets of $11.1 billion and its return on equity and its efficiency and dividend percentages ? against a number of other banks including the Bank of Butterfield, HSBC, Citigroup and Wells Fargo.

Based on this information, Mr. Melvin concluded that the bank had not weighed in well against other industry players with it making the lowest returns on both assets and equity compared to any of the other institutions in the line up, and that its efficiency levels were far below the others.

He said that the bank?s numbers showed it was ?far from efficient in making money for its shareholders?.

Even what was historically the bank?s high performer, its fund administration arm, Global Fund Services, was said to be a poor earner for the bank, with 91 cents of every dollar of revenue going to expenses.

The net effect, Mr. Melvin said, was that $45 per share was ?not an unfair price given the bank?s level of efficiency.?

Robert Pires, BIAS chief investment officer, followed up with his views on how the deal could impact Bermuda.

Mr. Pires prefaced his comments by saying that he was ?surmising? in certain areas, without having information directly from the bank. He added that he had a reputation as being provocative, but thought his opinions and predictions on the bank?s future under HSBC would be what happened.

As a Bermudian, Mr. Pires said he shared some of the sadness that had been expressed after news of the deal. ?I am sad as many others are,? he said, adding that his initial training in the financial services sector had been with the Bank of Bermuda.

He said he, and other Bermudians, had been proud of the bank?s growth and development into a global enterprise.

He said the HSBC transaction would change things as the Bank of Bermuda?s name and presence in some of the prestigious financial centres around the world would be no more after the sale, and its absorption into HSBC?s vast network of offices.

?I can understand the emotional sentiment,? Mr. Pires said but pragmatically added that the bank had found itself in a difficult situation with low earnings, a tough investment and interest rate environment and ever increasing competition from other banks around the world.

To that end, he said that BIAS had started to move away, three to five years ago, from investing its clients funds in the Bank of Bermuda.

But Mr. Pires predicted that under HSBC the bank could prosper with its lending profile changing (the bank has historically been very conservative with its loan portfolio weighing in well under industry averages, with it totalling a mere 16 percent of total assets) and changes being made to make it a more efficient organisation.

The Bank of Bermuda has publicly said that under HSBC there could be up to 250 job redundancies made within its Bermuda operations, with it currently having a staff just under 1,200. But Mr. Pires guessed that job cuts could go as high as 400.

He said he thought HSBC would strive to make its cuts ?politically palatable? and that a number of the reductions could be achieved through early retirement, not renewing certain work permits, and natural attrition. Taking these factors into account, Mr. Pires that there could be as few as 50 true redundancies, but further cuts could follow in years to come.

On the positive side, Mr. Pires predicted that lending levels would greatly increase under HSBC and that, in time, and with the opening of the Island?s financial services sector to other foreign institutions, that lending rates could be closer to those seen in the US.

In conclusion, he said that the Bank of Bermuda and HSBC appeared to be a ?good fit?.

With the deal still being subject to shareholder approval, Mr. Pires predicted that were shareholders to vote down the sale, it could lead to the bank?s share price falling off significantly.

?If it did not go through, the share price would fall to previous levels ($35) immediately and over time it could drift downwards (further). There could be erosion of shareholder value, if (the deal) did not go through,? he predicted.