The Bank of Bermuda yesterday told investors that its financial advisor ? Merrill Lynch ? stood to make $10.8 million if the bank?s sale to HSBC went through.

The bank announced that it was on the sales block at the end of October with HSBC poised to buy up Bermuda?s largest bank if shareholders and regulators approve the transaction.

The bank?s senior executives yesterday defended the amount being paid to Merrill for its services, saying both the amount being paid and the way the fees were structured ? with the advisor earning significantly more if the sale goes through ? were ?standard practice?.

Detailed information on what Merrill Lynch stands to make was revealed in the bank?s proxy materials ? a comprehensive package of information on the proposed transaction ? that were sent out to shareholders in advance of a February 16 shareholder meeting. On that date, shareholders will be able to vote either in favour or against the deal which carries a $1.3 billion price tag.

Merrill Lynch, the well-known investment bank, has given financial advice to the bank on the deal and issued a fairness opinion on the $45 being paid out per share. The $45 is made up of $40 per share from HSBC and a $5 special dividend from the Bank of Bermuda.

Within the text of that fairness opinion, in which Merrill found that the price was a good one for shareholders, the company said that it would make significantly more ? $10.8 million and costs ? if the deal closes.

But, how much less does Merrill Lynch stand to make if the deal is not approved by shareholders? The materials issued yesterday indicated that it would only be due the $600,000 in fees that it has already been given.

?We are acting as financial advisor to the company (the bank) in connection with the transaction (sale to HSBC) and will receive a fee from the company for our services, a significant portion of which is contingent upon the consummation of the amalgamation.?

Broken down, Merrill said it had already been paid $600,000 but stood to make much more. As financial advisor, the company said it had ?received fees of $100,000 from the bank upon the signing of its engagement letter and of $500,000 upon the signing of the transaction agreement.?

Merrill continued: ?(We) will receive a further fee equal to 0.80 percent of the aggregate amalgamation consideration (including the special dividend) payable in cash upon the closing of the amalgamation, minus $600,000 in fees previously paid.?

Yesterday, the bank?s CFO Ed Gomez ? who it has been announced will be leaving the bank at the time of the sale with HSBC appointing their own financial head ? said Merrill stood to be paid 0.80 percent of $1.35 billion, which breaks down to $10.8 million.

Merrill said in its materials that the $1.35 billion figure used for the calculation of their fees was based on the assumption of the bank having ?29.9 million shares issued on a fully-diluted basis? making ?the aggregate amalgamation consideration approximately $1.35 billion.?

In addition to the hefty fees it will earn through the sale, Merrill Lynch can also be reimbursed for its expenses incurred in being the bank?s financial advisor.

?The bank has agreed to reimburse Merrill Lynch for its reasonable out of pocket expenses, including the reasonable fees and disbursements of legal counsel.?

Although some disgruntled shareholders, in the weeks after the sale was announced, questioned Merrill?s ability to act on behalf of the bank ? citing the investment giant having prior business dealings with HSBC ? bank management said there had been no recent dealings between the two financial giants and shot down any idea that there could be conflict of interest in Merrill, who has been the bank?s advisor since it listed on the Nasdaq in late 2001, acting for the bank on this matter.

At a press conference following the release of shareholder proxy materials, bank CEO Henry Smith yesterday said Merrill?s fees were in line with what is paid in the industry for these kinds of services.

?It is a standard practice. They are paid to assist institutions like ourselves with transactions like this. And what they would be making is fairly standard, both in terms of its size and certainly standard in terms of the application.?

He continued: ?I think it is important to talk about Merrill for a minute. I think there are some of our shareholders who do not understand how this works. Merrill is one of the largest, most experienced, well-regarded investment bankinggroups around. They are obliged to give a fairness opinion and they would not give an opinion that they could not stand behind or they would lose their very good reputation in the marketplace.?

The proxy materials indicated that Merrill Lynch gave the bank?s board its oral opinion on the fairness of the price for the bank, on 27 October ? the day before the deal was made public.

When asked if one day was enough time for decision makers at the bank to digest the information presented before announcing the proposed sale, Mr. Smith said that both management and the board would have been aware of Merrill Lynch?s findings as it went through the process of coming to its final opinion.

?Merrill Lynch had been working with us throughout. (They) presented their official fairness opinion to the board on the day before we announced (the transaction) but management and the board had been working closely with Merrill on the transaction so everyone understood.?

Indeed, Merrill?s analysis included discussions with senior management in regards to the bank?s historical financial results and its forecasts on future results.