Bank of Bermuda senior executives were grilled on the sale of the bank to multinational banking giant HSBC, in a meeting with members of the Warwick PLP branches last night.

CEO Henry Smith and chief operations officer Phillip Butterfield addressed roughly 100 people - including Premier Alex Scott, Transport Minister Dr. Ewart Brown and Youth and Sports Minister Dale Butler - at the Warwick Workman's Club.

The two bank bosses - with it being announced this week that Mr. Butterfield would succeed Mr. Smith as CEO when he steps down from the bank next year - walked the audience through details of the bank's $1.3 billion takeover by HSBC from how the price was arrived at, to training opportunities for Bermudians and the possibility of up to 250 job cuts.

The sale was something Mr. Smith said he and other senior management and board members were “enthusiastically” recommending to shareholders. He added that any other alternative to selling would have presented “very significant operational risk”.

In the round of questions that followed, Mr. Smith and Mr. Butterfield came under fire when asked to answer a wide range of concerns over the price the bank was being sold for and for selling 100 percent of the bank and its property.

Mr. Smith said he had been repeatedly asked why the bank was being sold lock, stock and barrel instead of going into a partnership where it would have retained some level of ownership.

But Mr. Smith said HSBC's interest had been for a 100 percent takeover of the bank, and he questioned whether the deal would have worked any other way.

“HSBC want 100 percent,” he said, adding: “No one likes to deal with a minority shareholder. It rarely works well and that was not what they were interested in.”

That did not sit well with one audience member, however.

He said: “Please explain one more time why you had to sell the whole bank. Hello.”

His concern was taken up by Mr. Butterfield who reiterated what Mr. Smith had said in his initial comments, that HSBC had been interested in buying up the whole bank, and had not been willing to negotiate for a smaller stake.

Mr. Butterfield likened the sale to that of a house, “you would not buy two rooms of a house, you buy the house.”

In response, the man stood up and said the bank was an institution that could not be compared with a home. When Mr. Butterfield said that was the way to look at it, the man gestured towards the audience, saying, “see all these people, we are all involved here. We are all involved, but we don't all live in one house.”

Another audience member questioned the value of the property HSBC was acquiring in the deal, with all 251,000 square feet of property the bank owns in Bermuda going as part of the sale.

Mr. Smith said he did not have any total for the value of the bank's property with him at the meeting but that it was covered in the $1.3 billion price tag. He added that the bank was already obliged to only hold real estate that it needed for its operations, and that the same would apply to HSBC.

Under the purchase agreement, land holdings in the Caymans, Guernsey and the Cook Islands are also included - an additional 48,200 square feet of property.

There was also concern expressed on the $45 price per share - which breaks down to $40 from HSBC and a $5 special dividend from the Bank of Bermuda - who said if $5 of the pay-out was from the Bank of Bermuda, did it not already belong to shareholders?

Mr. Smith said all of the bank's assets, including the $150 million in surplus capital that will be broken into the $5 dividend payment, belonged to the bank's investors. But he said that no matter how you looked at it, shareholders were getting $45 per share.

Mr. Smith pointed out that the $150 million in capital had not been built up and kept by mistake, knowing that in the current competitive environment, if the bank had stayed independent it would have needed that capital.

But, he said, it should be kept in mind that by paying $150 million in dividend payments to shareholders, HSBC was acquiring a bank that would be worth $150 million less.

Questions were also raised on what other interest may have been expressed in the bank, but Mr. Butterfield underscored that HSBC had been the only one to bid for the business.

“There has been only one suitor at the door, and that is the dance we are in at the moment,” he said.

There were several questions from audience members on how the $45 per share would be paid and whether or not this would be subject to taxation.

Mr. Smith said Bermudians would not have to pay any taxes but if liquidating their investment - instead of reinvesting it in HSBC - the $45 would be paid in US dollars and would lose some value when converted to Bermuda dollars.

He added that Bermudians would be able to reinvest in HSBC shares, if they wished, without paying any brokerage fees or foreign currency exchange fees.

A woman at the meeting expressed concern on having to deal with a withholding tax on dividend payments from HSBC, were she to move her Bank of Bermuda investment there. But management said they understood that Bermudians would not be subject to a withholding tax.

The bank's 2000 exemption from 60/40 Bermuda-foreign ownership rules led one audience member to ask the bank if they had sought to get out from under that law so they could have access to foreign capital or to be sold.

Mr. Smith said: “The bank was looking for the exemption in order to list on a public exchange (with the bank listing in April, 2002 on the Nasdaq), but our timing was not particularly good. Hindsight is 20/20. It did not work out well.”

He continued: “The HSBC offer came along as a separate incident,” adding the board considered it and felt it was worth pursuing, at which point they sought Government approval.