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Butterfield looks to charter its own course

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News that the fifth-biggest bank in Canada is to end its ownership stake in Butterfield Bank has been characterised as “a real a show of independence and strength” for the Island institution by Butterfield CEO Brendan McDonagh.

“Butterfield Bank is remaining independent, and as we stay independent it gives us great flexibility going forward in the areas we want to grow in and invest in,” he said.

“I'm sure Bermuda will appreciate having a very strong bank like Butterfield on its doorsteps and managed and led from here.

“We are charting our own course.”

At the same time Mr McDonagh thanked Canadian Imperial Bank of Commerce (CIBC) for the support it has given during the past five years.

There had been speculation that CIBC might eventually takeover Butterfield Bank.

Instead, the Canadian bank, which holds 19 per cent of Butterfield's issued common shares, is to fully divest itself from its partial ownership of the bank when the share repurchases are made, which will be on or before Thursday.

Butterfield is spending $120 million to repurchase and cancel 80 million shares owned by CIBC.

Finance group Carlyle Global Financial Services will buy CIBC's remaining 23.4 million shares in the bank.

The stock is being repurchased at a discount price of $1.50 per share. Butterfield's common shares closed at $1.97 on The Royal Gazette/BSX Index yesterday before the announcement was made.

In 2010, CIBC was part of a rescue investment group that pumped $550 million into the bank. At the time Butterfield was struggling due to the economy and toxic loans. It was given a new lease of life thanks to the refinancing.

CIBC and Carlyle Group each injected $150 million and took an equal 22 per cent ownership of the bank at the time. The companies bought the stock at $1.21 per share.

The new capital allowed Butterfield to de-risk its balance sheet and sell off hundreds of millions of dollars worth of troubled investments that had been backed by US mortgages.

The bank yesterday reported a first quarter profit of $26.8 million, a 15.8 per cent improvement on the same period last year.

“Our focus over the last five years has been on rebuilding value for shareholders through investment in our core businesses, accretive acquisitions, and carefully managing expenses and risks,” said Mr McDonagh, who is also chairman of Butterfield Bank.

“In executing this transaction, we will use a portion of Butterfield's excess capital to fund the repurchase and cancellation of shares, and enhance the ownership positions and growth potential of our continuing shareholders.”

He added: “I would like to take this opportunity to tank CIBC for the confidence they showed in Butterfield with their participation in the 2010 recapitalisation, for their continued support during the last five years, and for the contributions of their representatives on the Butterfield Board.”

Shawn Beber, CIBC's senior vice president, strategy and corporate development, is to step down from the Butterfield board at today's general meeting.

He said: “We congratulate Butterfield's management team on the progress they have made in restoring value to the Butterfield franchise.

“We saw this as a strategic investment five years ago, and we are pleased that we are now able to monetise that investment for our shareholders.”

In a statement, Butterfield Bank said the repurchase and cancellation of CIBC's shares will result in a 14.7 per cent reduction in the number of outstanding common shares “which will have the effect of increasing all other shareholders' proportional ownership positions in Butterfield”.

The bank's book value per share is anticipated to fall 5 per cent per share as a result of the transaction, but the bank anticipates this will be earned-back in less than 2½ years.

Mr McDonagh said the discounted market price of the repurchased shares reflected the movement of such a large stock with limited liquidity. The repurchase price is 29 cents per share higher than the original purchase price, and CIBC has also accumulated share dividends along the way.

“They have done very well. Remaining shareholders will hopefully do even better,” said Mr McDonagh.

Oliver Sarkozy, managing director and head of Carlyle's Global Financial Services Group, and a member of Butterfield Bank's board of directors, said: “We are grateful for the partnership with CIBC, without which Butterfield's recapitalisation and subsequent progress would not have been possible.

“We firmly believe Butterfield's future is as full of opportunity as the past five years have been, and out participation in the transaction announced today is a validation of that belief.

“We are delighted to be able to continue to support Butterfield and its continuing investors in this important next phase in the bank's development.”

Butterfield Bank CEO Brendan McDonagh
Bank of Butterfield ¬ Photo David Skinner

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Published April 28, 2015 at 9:00 am (Updated April 28, 2015 at 9:04 am)

Butterfield looks to charter its own course

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