The Bank of Bermuda has accepted an offer from HSBC Holdings Plc, the world's second- largest bank by market value, to be bought for $1.3 billion in cash.

Bank of Bermuda shareholders will receive $45 per share, 16 percent more than the average closing price for the past three months on Nasdaq, London-based HSBC and the Bank of Bermuda said.

"The acquisition will significantly enhance our capabilities in some important lines of business," HSBC Chairman Sir John Bond said in a statement.

Founded in 1889, Bank of Bermuda has assets of $11.8 billion and 3,000 employees in 13 countries. The lender earned $83.9 million before taxes, or $2.53 a share in 2002, HSBC said, pricing the transaction at about 18 times earnings.

Bank of Bermuda's board of directors will recommend that shareholders accept the deal at a special general meeting.

The deal has received the support of the Ministry of Finance.

The bank's private client business has about 5,000 clients controlling $21.7 billion in assets. It also helps administer about $113 billion in assets for institutional investors.

The board of Bank of Bermuda has approved the sale and will recommend it to shareholders, HSBC said.

Bank of Bermuda shareholders will receive $40 per share in cash from HSBC and $5 per share from Bank of Bermuda as a special dividend, according to the statement. Bank of Bermuda will pay the dividend before the acquisition is completed.

HSBC shares gained 2.5 percent to 865.5 pence in London.

Bank of Bermuda shares jumped to $44.88 in afternoon trading.

Bank of Bermuda was advised by Merrill Lynch.