The Bank of Butterfield yesterday disputed a new report from ratings agency Moody's which says that offshore private banking is losing its appeal for high net worth clients.

Private banking, which provides tailor-made service to wealthy individual clients, has become a major source of income for offshore banks over the last ten years, including Bermuda's.

The Moody's report, `Rapidly Evolving Dynamics of Today's Private Banking Industry' written by analysts Samuel Theodore and Alexandra Sleator, said: "The first disincentive for (affluent individuals) to place their assets offshore is simply the trouble of doing business abroad when the quality of locally available private banking services is now on par.'' The analysts also feel developments in the EU and US fiscal frameworks have a bearing on choice of jurisdiction for banking by high net worth individuals.

And they feel the publicity generated by recent reviews of offshore centres by international bodies such as the OECD and the FATF has had an adverse effect.

Moody's said: "While the main risks for private banks are connected with reputation, operational and performance issues, those banks operating in offshore jurisdictions also face criticisms over their tax environment and anti-money laundering policies.'' The analysts feel this change in client preference is undermining the stability of offshore banks. Among 12 offshore and onshore banks rated by Moody's London office the Bank of Butterfield received some of the lowest scores for financial strength, along with other offshore banks such as Banco General of Panama and BMB Investment Bank of Bahrain.

Graham Brooks, executive vice president of International and Trust at Bank of Butterfield in Bermuda, said: "While I agree with a lot of their findings (in the report), I do not necessarily agree with their conclusions. There will always be people who use both onshore and offshore.

"We have anticipated these evolutionary changes and have moved very much towards having the right relationship with our people. Our business is growing strongly.'' The report mentions issues relating to money laundering and anti-money laundering policies. Mr. Brooks does not think offshore, and particularly Bermuda, can be unfavourably compared to onshore in these issues. "Conditions here compare very favourably to those onshore,'' he said.

With currently around 7 million individuals worldwide who have at least $1 million in investable assets, the potential client base for private banking is set to grow as world wealth is expected to grow at 12 percent over the next five years.

Moody's said the new rich are more concerned with transparency of process and reporting, performance and innovative products than they are about conservative management and tax avoidance. They are also more actively involved with money management than the traditional, passive, `old money' clients who used to make up the larger proportion of private banks' clientbases.

"Offshore private banks face a conundrum because they need to both continue servicing their longstanding customers who favour a high fiscal content, as well as establish themselves as credible financial managers for the new wealthy.'' Moody's added: "The very scope of products being demanded may indeed be beyond the capabilities of some private banks, thus raising the issue of service outsourcing and third party offering.''