Easing the 60/40 ownership rule for Bermuda banks could lead to job losses and hit share prices, it is claimed.

A leading banker believes a law change may encourage well-established banks to set up a Bermuda operation -- and increase competition on the Island.

This could put the squeeze on Bermuda's current banks, says Bank of Butterfield CEO Calum Johnston. The Bermuda Monetary Authority this week confirmed that there would be nothing in the Banks and Deposit Companies Act to prevent foreign-owned banks from applying for a Bermuda licence once the law was changed.

And, according to the Act, any bank licensed to operate in Bermuda must offer local service.

The competition this would introduce to Bermuda's "small market'' could cause job losses at existing local banks, said Mr. Johnston.

"There is already considerable competition for retail banking services in Bermuda with the two large banks and three deposit taking companies actively competing for customer business in a market of only 60,000 people,'' he said.

"It is not unthinkable that a major international bank would agree to provide retail services in order to win the right to compete for more attractive corporate and offshore business.

"The danger in this is that an international bank establishing in Bermuda would be likely to outsource processing and back-office work to locations outside Bermuda.

"This could well cause job losses in the existing banks which would not be compensated by job gains in the new banks,'' he continued.

The Bank of Bermuda has been pressuring Government to abandon the restrictive 60/40 ownership law for over two years so that it can be listed on the Nasdaq and raise more capital.

The Bank of Butterfield recently revealed that it also would be applying for the exemption to bring the price of its shares in line with their "true value''.

But a relaxation of the rule will leave the doors open for other banking institutions to come in creating competition that could alter share prices.

The Organisation for Economic Cooperation and Development (OECD), which has provisionally left Bermuda off a blacklist of countries engaging in harmful tax practices, has expressed concern that Bermuda not set up laws that are only applicable to certain companies in an industry.

Thus real consideration would have to be given to any reputable bank seriously interested in coming to the Island.

The Bank of Bermuda said they would welcome the competition that might arise as a result.

Job losses warning over 60-40 rule relaxation "Competition is healthy and, provided it is managed in the best interests of Bermuda, with quality organisations and on a level playing field -- we welcome it,'' a Bank spokesperson said.

"Bank of Bermuda already competes very successfully in such jurisdictions as Hong Kong, Dublin, Luxembourg, Guernsey and the ten other international financial centres from which we operate,'' the spokesperson added.

While welcoming competition in principle, Mr. Johnston appeared more guarded.

"I would like to have a couple of years more in which to allow the management team at the Bank of Butterfield to bring the Bank to the peak efficiency I know we can achieve.'' He also noted that a change in the regulations "would not mean automatically that there would be a rush of foreign banks setting up operations in Bermuda''.

"I am quite sure that only applications submitted by first class banks would be considered. This greatly narrows the field.'' he said.

"In Cayman the Bank of Butterfield is a leading bank competing very successfully with some of the world's major international banks.

"If a similar situation arose in Bermuda I am confident that the Bank of Butterfield could compete successfully with any newcomer,'' he continued.

Mr. Johnston said once his team were brought to "peak efficiency'' the Bank would be " ready and competition would force on us further efficiencies and make us explore other avenues for additional business, all of which would serve only to make the Bank stronger.

"This would lead inevitably to better customer service and improved share prices,'' he said.

Chairman of the Board of Bermuda Commercial Bank, John Duess, and his assistant, have a policy of not answering media inquires.

Calum Johnston