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Butterfield receives USD550m equity from institutional investors

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The Bank of N.T. Butterfield has received USD550m in new equity from funds affiliated with The Carlyle Group, Canadian Imperial Bank of Commerce and other institutional investors.

Other investors include the Wellcome Trust, The Bermuda Government Pension Funds, Julian Robertson, and Goshen Investments. 

As part of the transaction, existing Butterfield shareholders will have the right to participate in a rights offering, proceeds of which will be used to buy back some of the newly issued shares.

The new equity capital is part of a plan to increase capital and remove risk from the bank’s balance sheet. In addition, the new capital provides flexibility to restructure Butterfield’s investment portfolio, decrease volatility in the balance sheet, and maintain capital ratios well in excess of regulatory requirements. 

Butterfield has appointed Bradford Kopp, most recently executive vice president and chief financial officer, as president, chief executive officer and director, succeeding Alan Thompson, who has retired from the bank.

Butterfield has also reported an audited net loss for the full year ended 31 December 2009 of USD213.4m, or USD2.34 per fully diluted share, compared to audited net income of USD4.8m, or USD0.05 per fully diluted share, in 2008. These losses resulted from a write-down of primarily mortgage-backed securities and substantially higher commercial loan loss provisions. 

Butterfield may incur a further loss in the range of USD150m to USD175m in the first quarter of 2010 related to the investment portfolio restructuring, at which point the balance sheet would be substantially de-risked. 

Butterfield has suspended dividend payments on its common shares until the bank returns to a position of sustainable profitability. 

“The board and management decided to seek the capital to allow us to get the potential effects of our problematic assets behind us and to continue to comply with increasing regulatory requirements for common equity capital,” says Butterfield chairman Robert Mulderig (pictured). “We considered a range of alternatives. Foremost in our minds was the need to preserve and maximise value for our shareholders. But we also gave deep thought to the impact of the alternatives on our entire company.”

Under the terms of the investment agreements, Carlyle and CIBC have purchased approximately USD150m each of common and mandatorily convertible preference shares, and the other investors collectively have purchased an additional USD250m of common shares and mandatorily convertible preference shares at a price of USD1.21 per share for both the common and preference shares. 

The USD1.21 per share purchase price represents a 27 per cent premium over pro-forma 31 December 2009 book value per share. 

Butterfield’s current shareholders (excluding the new investors and certain shareholders located in the US) will be permitted to subscribe on a pro rata basis to an offering in which they will have the right to invest an additional USD130m in common shares at the same USD1.21 per share price as the new investors. 

In addition to the common shares, the rights offering includes contingent value preference shares, which will be convertible into common shares and would serve to enhance the value of current shareholders’ interests based on the performance of certain assets. The rights will be fully transferrable and listed on the Bermuda Stock Exchange. 

Proceeds from the rights offering will be used to repurchase shares of certain new institutional investors. If the rights offering were to be fully subscribed, the resulting aggregate ownership interest in Butterfield of current shareholders (excluding the new investors) would be approximately 37 per cent. Neither Carlyle nor CIBC will own more than 22.8 per cent of Butterfield. 

The USD550m total amount of new equity represents 82.5 per cent of the pro-forma ownership of Butterfield; this percentage will be reduced based on the results of the rights offering.

Olivier Sarkozy, Carlyle managing director and head of the financial services team, says: “This capital gives Butterfield the flexibility under a new chief executive officer to restore the confidence and discipline that have been the hallmarks of this storied institution since its founding in 1858. We look forward to a long and productive relationship with Butterfield as it reaffirms and fulfils its commitment to the communities in which it operates.”

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