Company and its employees into a full-blown savings and loan company, Gibbons Deposit Company holds 15 percent of the sector's market share. Doug Ashbury talked to managing director Mr. James Gibbons about the firm's recent growth and its future.

When Mr. James Gibbons returned to Bermuda to work after a year as a money manager on Wall Street, Gibbons Deposit Company had $3 million in deposits.

Today it has $170 million, constituting an estimated 15 percent of the market, the result of offering highly competitive rates and a wide range of savings vehicles.

It is a far cry from the company -- then called Gibbons Company (Deposit Accounts) Ltd. -- formed 50 years ago to serve Gibbons Company employees' financial needs and to provide the company with a relatively inexpensive source of funds.

The rationale for operating a deposit company was "not entirely altruistic'', commented Mr. Gibbons, 31.

The company's growth since 1987 has even surprised Mr. Gibbons.

Though not a big fan of "five year plans'' he recalled speculating then that deposits at the company might grow to $25 million by 1992.

Some of the company's success is due to its hours -- it is open from Monday to Saturday -- and its small size, he said.

It is "easier to steer a punt than a frigate'', he said. "We have a lower cost structure.'' The deposit company has eight people on staff but utilises other services in the Gibbons Company structure.

"We do not really get into commercial (mortgages). We try to keep the size of our loans down, commercial land is harder to value if it has to be auctioned,'' he noted.

In fact, he said GDC was the last to lower deposit rates in the last round of interest rate drops. Loan rates fell "simultaneously'' after the Interest and Credit Charge Act was repealed in the last Budget, resulting in the removal of the interest rate cap.

But not all the growth at the company comes from new money, rather, some of it had to have come from his competitors, he alluded.

Another part of the growth could be in the types of products available to customers, such as an eight percent interest rate on loans and an "on demand'' 4.25 percent interest rate on deposits as well as special rates for amounts over $10,000.

For over $100,000 in deposit for over two years, the interest rate is seven percent.

Although there appears to be a large differential between what is paid, 4.25 percent, and what is charged, eight percent, the gap is less significant when you factor in the cost of keeping $40 to $50 million of that $170 million liquid.

"As an independent I keep my reserves higher, as there is no central bank to fall back on,'' he said.

But that means that the company may only receive 3.25 percent interest on its own deposits, he said.

Of his competitors, Mr. Gibbons said: "We all know each other, we all talk about the industry.'' "GDC continues to grow'', he added.

Deposits across the Island industry are currently around $1.1 billion, he estimates.

Eighteen months ago, Bermuda's deposit companies held $880 million, with the amount growing on average about 16 percent per year since June 30, 1989, according to last year's prospectus from Bermuda Home, the Island's largest deposit company with more than 50 percent of the market.

Bermuda Home, which was formed when the deposit companies of the Bank of Bermuda and L.P. Gutteridge were merged, does not seem to faze Mr. Gibbons as much as the prospect of future regulatory changes.

Gibbons' long term plan is to "lengthen and strengthen the deposit base and try to prepare for possible changes,'' he said.

Deposit taking companies must be aware of the possibility of more regulatory changes, similar to the lifting of the interest rate ceiling announced in last February's Budget, he said.

Other changes could see exchange controls, which affect the Island's deposit industry, relaxed.

If Government decides to allow US dollar borrowing, it could crush the local industry, he said. By law, US money cannot be borrowed to buy Bermuda residential property.

"Allowing existing exchange control to go without giving Bermuda deposit companies the power to deal with it could damage the industry,'' he commented.

In the meantime, GDC is considering offering an open-ended deposit account which would allow customers to add money to their accounts over a three to five year term while receiving more than seven percent interest. The account would be closed to withdrawals, he noted.

Mr. Gibbons said this type of vehicle might be attractive to people wanting to save money for education.