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Bank’s slide central in stock exchange drop

Ups and downs: the performance of The Royal Gazette/BSX Index, using year-end closing levels, over the past ten years (Graph by Scott Neil)

A sharp downturn in the stock price of Butterfield Bank in the fourth quarter of the year was the main driver of an 11 per cent loss for the local stock market in 2018.

Only three stocks of the 13 domestic companies listed on the Bermuda Stock Exchange managed share price gains last year as The Royal Gazette/BSX Index slipped more than 240 points to close the year on 1,958.99.

The BSX ended the year with a total market capitalisation of $351 billion, $2.4 billion of which represented the domestic market. Of that latter figure, Butterfield is by far the biggest component with a market capitalisation of nearly $1.7 billion.

The bank was having another stellar year until late October, when it announced third-quarter results. Investors were rattled by lower revenue expectations for the banking custody business Butterfield had acquired from Deutsche Bank and a sharp fall in deposits.

The bank’s US-listed shares plunged more than 25 per cent in the space of half an hour on the New York Stock Exchange on the morning of October 24, and BSX-listed shares followed suit.

The end result was that Butterfield shares fell from $37.50 to $31, a fall of 17.3 per cent, in a year when they had peaked at $53.

The bank’s profits continued to rise — it’s $50.4 million third-quarter net income was about $10 million higher than a year earlier. That, however, was not enough to meet the even higher expectations of Wall Street analysts, who had come to treat Butterfield as a growth stock.

The Royal Gazette/BSX Index had trading volume of 3.9 million during the year, which was an increase on 2017. The value of shares traded was $49.7 million.

Ascendant Group was the success story of the BSX in 2018 — in terms of stock price, at least.

The stock started the year at $9.79 and ended 72.6 per cent higher at $16.90. The main reason for the surge a $15-per-share takeover bid from TFC Utilities, a US-based company, in April.

Although the Ascendant board flatly turned down the offer, the bid highlighted that the group had been trading well below half of its book value for several years.

Ascendant has been vigorously buying back its own shares. In May, it authorised the repurchase of up to one million shares, equivalent to nearly one tenth of its shares outstanding.

Somers Ltd, a financial-services holding company that owns Bermuda Commercial Bank, as well as stakes in financial-services companies in the UK and Australia, was another stock to record a positive 2018, gaining 8.6 per cent.

Currency fluctuations and particularly the weakening UK pound had a significant impact on earnings as Somers’ profit for the year through September 30 fell to $4.2 million, from $19.4 million the year before.

Bermuda Press (Holdings) Ltd was the only other domestic stock to rise, with a gain of 14.6 per cent, from $6.11 to $7.

In June the company announced half-year earnings of $1.43 million, up from $550,000 a year earlier. This after the company announced a 40 per cent hike in the quarterly dividend to seven cents per share.

Polaris Holding Company, owner of Hamilton docks operator Stevedoring Services, had another solid year and recorded a $1.01 million six-month profit through September, as its stock price remained unchanged at $5.

One Communications also ended the year unchanged on $3, as did LOM Financial Group on $2.50.

Insurers Argus Group Holdings and BF&M both saw stock price declines, of 9.1 per cent and 6.1 per cent respectively, despite posting strong earnings. By market capitalisation BF&M ended the year valued at $143.3 million and Argus at $73.8 million.

Some of the smaller and less traded issuers on the BSX recorded some hefty share price falls. Devonshire Industries, Bermuda Aviation Services and West Hamilton Holdings all fell by more than 30 per cent. Water supplier Watlington Waterworks fell 14 per cent.

In a statement issued today, the BSX said: “As part of its ongoing commitment to the domestic capital market, the BSX continued in 2018 to expand its ‘Own Your Share of Bermuda’ investor education awareness programme. Successful partnerships with organisations such as CFA Society Bermuda, The Olderhood Group Ltd, Bermuda and The Royal Gazette, expanded the exchange’s outreach, providing new venues to promote the importance of investor literacy in Bermuda.”

Greg Wojciechowski, chief executive officer of the BSX, said: “We were very pleased with the positive response the initial campaign received from the public as well as from our domestic listed issuers and sought to build momentum by supporting a similar event in 2018.

“Once again, the event was aligned with the International Organisation of Securities Commissions World Investor Week and was successful in increasing domestic investor education, literacy and awareness of investment opportunities right here at home in Bermuda.”