bullish on the Island's health.

The bank's latest letter to shareholders -- the first under the leadership of Henry Smith -- stated: "Bermuda appears to be in good condition with growth in gross domestic product very much in line with the US and UK economies.

"The international business sector continues to generate strong growth in foreign currency earnings and expectations are that the construction industry will continue to demonstrate strong performance over the next two to three years.'' The letter, signed by Mr. Smith and Chairman of the Board Eldon Trimingham, also stated: "The budget announced on February 19 by Finance Minister Grant Gibbons relies on growth in the Bermuda economy to fund a six percent increase in current account expenditures with little or no increase in public taxes.'' On the political front, the UBP "appears to have made a popular and very sensible choice in Pamela Gordon. The Bermuda electorate now enjoys a reunited and revived ruling party and a strong opposition, also led by a capable and popular woman, a situation that can only be good for the Island.'' Domestic and international operations were performing well, the letter assured.

On domestic operations, the Island's retail activity continued to expand.

In Europe, the economic scene continued to be dominated by the European Monetary Union (EMU).

"A detailed analysis is in hand of the probable effects of EMU on the bank's revenues and costs under various scenarios as well as necessary modifications to core systems.'' In Britain, Tony Blair's "New'' Labour Party was expected to win with a comfortable majority, the letter stated.

"Previous experience has shown that it is not unreasonable to expect a Labour victory to offer opportunities to attract further UK-sourced business to those offshore jurisdictions where the bank is established.'' The bank's Asia business earnings were significantly ahead of budget.

On the downside, the letter condemned the strike in March as destructive to Island prosperity.

"We are disturbed by the recent industrial action involving the Thomson group of companies and we encourage both management and labour to do everything in their power in future, to avoid such confrontations in the interests of our common prosperity.

"Bermuda's fragile tourism industry cannot sustain shocks of this nature and we should all pool our efforts to ensure that our valued guests receive uninterrupted service in return for choosing Bermuda over other destinations.'' After businessman Stephen Thomson bought the assets of Hamilton Val Cleaners and Paget Dry Cleaners a battle with the Bermuda Industrial Union erupted.

The union called for a ballot at the two shops but Mr. Thomson said any ballot would have to also include staff from his other two businesses, Just Shirts and Mailboxes Unlimited Ltd.

Unable to resolve the impasse, union members crippled garbage, bus and ferry services for three days. Mr. Thomson closed the business and put then up for sale.

As well as concern over the industrial action, the letter also stated the Island's tourism and retail woes remained troubling.

The Bank of Bermuda is spear-heading the initiative in which Boston-based Monitor Group is to examine the Island's tourism product. Government is backing dollar-for-dollar amounts raised in the private sector. A million dollar deal was signed Tuesday.