Bermuda should fare better than most of its competitors during the current financial crisis, but it will be a slow road to recovery.

That was the view of Alan Thompson, president and CEO of Butterfield Bank, who told yesterday's Hamilton Rotary Club meeting at the Royal Hamilton Amateur Dinghy Club that the Island was "very much part of the world economy".

"From the banking system perspective a lot of things that caused the problems did not happen in Bermuda," Mr. Thompson said.

"We did not have the sub-prime loans and none of us engaged in that, the lending standards here have been very good, residential mortgage portfolios have been very good, leveraging is nothing like the likes of UBS and others and we did not participate in credit default swaps."

But he warned that the hospitality sector had already been affected by the credit crunch and would continue to be so. The construction industry was also going to be slow, with a number of projects not able to secure financing and others which were being completed struggling to find the demand.

However, Mr. Thompson reckons international business will do well out of the turmoil, as insurance premiums increase after insurers' investment portfolios had not experienced too many problems.

"I think 2009 is going to be a pretty tough year for us," he said. "Bermuda is going to be impacted, but not as bad as some other jurisdictions.

"Banks are going to have some struggles going forward to regain their momentum. We are at the beginning of the recovery process, but it is going to be slow and we are going to emerge as a different industry."

Mr. Thompson also fielded a number of questions from Rotary members concerned about everything from the falling price of oil and the bailout of the US automakers to the financial crisis and CEOs' use of private jets and their bonuses.

He opened the lively debate by saying he had never before seen the financial and banking industry so impacted by a crisis in his 40 years working in the sector.

"I have been in banking over 40 years and I have never seen anything close to this kind of situation," he said.

"It is an absolutely remarkable situation — from Lehman Brothers going bankrupt to Merrill Lynch being taken over by The Bank of America in one weekend.

"But it is not just the corporate entities, you have countries that are in serious trouble, with Iceland defaulting, and we have talk of other countries potentially defaulting.

"I do not think there is any question about the seriousness of it."

Mr. Thompson said only as recently as two months ago there was talk of the US Government bailing out Wall Street and not Main Street, but he argued they were both closely connected.

He said the US Government today acknowledged it was in a recession, with the problems going back to the failure of Lehman Brothers, leading to the disappearance of confidence in the financial industry, before the Government stepped in to try to unfreeze the credit market.

Mr. Thompson said the issue started in the US 10 years ago when real estate prices were relatively low and interest rates were low, followed by aggressive lending as people looked for assets and loans. And America has exported the problem via the sale of complicated mortgage-backed packages.

"The problem was that it was all driven by an overly complicated structure or system," he said. "It was also down to a lack of clear accountability."

Another factor behind today's turmoil, according to Mr. Thompson, was the use of credit default swaps (which effectively guarantee a credit for a small fee), employed by the likes of American International Group, which was heavily exposed to them.

"They made a lot of money, but they were taking a lot of risk," he said. "There is a relationship between risk and reward and unfortunately that got out of balance as well."