Bermuda: Relaxing 60/40 Rule Could Affect Share Prices, Cause Job Losses

Lisa Ugur, Tax-news.com, London

24 July 2000

The issue of Bermuda's 60/40 ownership rule has erupted again in recent weeks and Finance Minister Eugene Cox has said that it is to be relaxed. However, there are fears that easing the 60/40 ownership rule for Bermuda banks could lead to job losses and affect share prices.

The 60/40 ownership rule means that any company which is listed as a local company must be owned by a 60 per cent majority of Bermudians or Bermudian companies - the other 40 per cent can be owned by people or institutions from outside Bermuda.

The Bermuda Monetary Authority confirmed last week 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. Moreover, according to the Act, any bank licensed to operate in Bermuda must offer local service.

Bank of Butterfield chief executive Calum Johnston said that "it was not unthinkable" that an overseas bank could offer retail banking services in order to compete for more profitable corporate business. This would obviously spell bad news for Bermuda's current banks and could potentially cause job losses.

Mr Johnston said of the ramifications of a relaxation in the 60/40 rule: '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. 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.'

The 60/40 rule has been increasingly viewed as restrictive from some quarters. For some time now the Bank of Bermuda has been exerting pressure on the government to abandon it so that the bank may list on the Nasdaq exchange and raise more funds. In the last fortnight the Bank of Butterfield announced that it was also seeking an exemption from the 60/40 ownership law.

However, the downside is that a change in law would pave the way for other banking institutions to come in, thereby creating competition that could affect share prices, although the Bank of Bermuda has said that it would welcome any potential competition: '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. 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,' said a Bank of Bermuda spokesperson.

The Bank of Butterfield would welcome the competition in principle, said its CEO Johnston: '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 said that any change in the 60/40 rule would not necessarily give rise to a sudden influx of foreign banks setting up operations in Bermuda, stating 'I am quite sure that only applications submitted by first class banks would be considered. This greatly narrows the field. 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.'

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