A Bank of Bermuda investor yesterday charged that its shareholders were being "robbed" in the sale of the Bermuda's largest financial institution to HSBC Plc.

"Management of the bank is selling the company for a $40 per share price which is significantly less than what would have been achieved in an auction," said James Ellman, president of Seacliff Capital, LLC in San Francisco.

Mr. Ellman, whose investment fund holds several hundred thousand dollars worth of shares in the Bank of Bermuda, predicted yesterday that the bank's stock would trade at least $50 over the next year if it was not sold.

The Bank of Bermuda announced this week that it had accepted an offer from global banking giant HSBC Plc to sell the bank for $40 per share and in addition, the bank would give shareholders a $5 per share cash dividend.

The total offer per share was 16 percent more than the bank's share price over the last three months.

But Mr. Ellman said he believed that the price of the shares would have increased significantly if interest rates rose and the US stock market improved.

He said the bank had failed to pitch the stock to US analysts and financial institutions and was trading at a much lower rate of share price to earnings than comparable US banks.

Although the stake held by Mr. Ellman is relatively small, he said he also advised other funds with larger positions in the bank. He is due to hold a conference call with bank officials today to air his concerns.

In a letter to the Editor, Mr. Ellman said: "If BoB is to be sold, management should remember that they have a fiduciary responsibility to their shareholders and that it is a criminal act to ignore that responsibility in the US (where the shares are traded).

"To vote for the merger, investors should first ask the BoB's management the following questions:

"1) Why was HSBC the only company asked by BoB management to bid on the bank? Might it be due to nonpublic retention bonus and 'golden parachute' contracts given to the top brass at BoB?

"2) Why did the Board of BoB not demand that an attempt be made to secure bids from other large US and/or UK banks? I believe that State Street, Northern Trust, J.P. Morgan, Citigroup, Royal Bank of Scotland, and Barclays would all be interested in buying BoB.

"3) Why was Merrill Lynch (a long-time client and joint venture partner of HSBC) picked as the sole investment banker for the deal? Did Merrill truly work to get the highest price for its client?

"4) Why has Merrill Lynch's fairness opinion on HSBC's price not been made public? Comparable bank acquisitions in the US and UK are usually done at a significant premium to the stock market price in the range of ten to 30 percent. The announced $40 bid by HSBC is a zero percent premium

5) Does HSBC's offer to buy BoB shares for $40 each make sense? This equates to only 13 times BoB's most recent annualised quarterly earnings of 75 cents per share. Similar processing/custody banks in the US trade at closer to 20 times their forward earnings.

6) BoB held $5 per share of excess capital prior to the announced $5 special dividend. Would BoB's stock have moved up strongly simply on the news of this special dividend without the addition of a takeover by HSBC? Why is management telling the public that the deal is for $45 per share', when HSBC is actually only paying $40?"

In an interview with The Royal Gazette yesterday, Bank of Bermuda chief operating officer Philip Butterfield said that he was "comforted by the fairness opinion" given by Merrill Lynch, whom he described as one of the world's most respected financial institutions.

"We had an independent assessment made of the price in regards to its fairness by Merrill Lynch, a premier financial advisor and major player in the financial institutions M&A business. They rendered to our board a fairness opinion that said this was a fair price to receive. They have a reputation to maintain and they would not have rendered that opinion without very serious consideration, so I am comforted that the price is fair," he said.

Mr. Butterfield added that shareholders were unlikely to get a better price for shares on the open market, if they were dealing with any real volume of shares.

"The other thing to keep in mind is that even though our shares were listed on Nasdaq, our shares were very thinly traded. Any sizeable share position, in my opinion, would never have been able to realise even the quoted price. If you had 200,000 shares and you put them all on the market at $50, it would have driven the price down because there would not have been a buyer for that position."

Mr. Butterfield conceded that that could have changed as the bank's stock became better known and tracked by analysts, but he said that would have taken time.

"It was not beyond our capacity but it would have taken time," he said.