Bermuda Finance Minister Eugene Cox announced on Friday that the Bank of Bermuda has been given an exemption from the 60/40 rule that prevents foreign ownership of a Bermudian company exceeding 40%.
The long-awaited and much-trailed decision allows the Bank of Bermuda to gain access to international capital via a US Nasdaq listing - the bank has been held back in its international expansion plans by the protectionist 60/40 rule.
The bank followed up the Minister's announcement by saying that it would begin immediately the process of filing documents with the SEC in preparation for a listing.
Bank of Bermuda's share price, whose steady rise over the past few months has reflected the growing certainty that the exemption would be given, will no doubt go even higher next week.
The Bank of Butterfield, Bermuda's other large, international
bank, has also applied to the Minister for an exemption,
and will presumably now receive one, although Butterfield
has said that it is no immediate need of more capital.
Eugene Cox said just a few days ago that he would
give a decision on both banks' requests before the
end of December.
The Government's decision was influenced by pressure from the OECD, which wants all offshore centers to create a level playing field for domestic and foreign players by removing two-tier tax and legal structures.
Eugene Cox said: "The OECD has stated very clearly that it considers the existence of two tiers of business structures within a jurisdiction, with different rules and restrictions applying to each, to be a potentially harmful tax practice."
The Bank of Bermuda's exemption is subject to several conditions. The bank must:
Here are the full texts of Eugene Cox's announcement, and the Bank's response:
Hamilton, Bermuda: 8 December 2000 - The Bermuda Stock Exchange (BSX) has received the following announcement from the Bank of Bermuda Limited.
Mr. Eldon Trimingham, Chairman, and Mr. Henry Smith, President and CEO, had the following statement:
“We are obviously very pleased that the Minister has decided to grant the Bank a licence exempting it from Bermuda’s 60/40 ownership laws. This will enable us to compete on an equal footing with other global financial institutions, all of which have unrestricted access to capital, and to continue to share with Bermudians the opportunities and financial rewards that go hand-in-hand with a successful global operation.
“We understand and share the Minister’s desire to ensure that Bermuda’s interests are protected in this process. To this end, we endorse the agreed provisions attached to Bank of Bermuda’s licence. Indeed, they are consistent with our intent to remain very much a Bermudian institution.
“We are now able to start the process of filing
the necessary documents with the U.S. Securities and
Exchange Commission in preparation for our U.S. listing.
We will also be arranging a Special General Meeting
of our shareholders in the near future to obtain their
approval for bye-law changes consistent with the licence
and its provisions. We expect the preparations for
a U.S. listing to take several months. Our goal remains
to list our shares in the United States at the earliest
appropriate opportunity and we will keep our shareholders
and the Bermuda community fully informed of our progress.
“We would also like to express our appreciation
to the Minister and his technical staff, whose efforts
have produced a solution that works well for both
the Bank and Bermuda. We would also like to thank
our own staff who have worked closely with the Ministry
to develop this positive result.”
Full Transcript Of Ministerial Statement Regarding
Bank Exemption
Hamilton, Bermuda: 8 December 2000 - Minister of Finance, the Honourable C. Eugene Cox, JP, MP statement to the House of Assembly, December 8, 2000, regarding Bank of Bermuda Limited Licence under Section 114B of the Companies Act 1981.
Mr. Speaker,
I wish to address the subject of the Bank of Bermuda
Limited and its application to the Minister of Finance
for a licence which would relieve it from the non-Bermudian
ownership restrictions commonly known as the “60/40”
law.
Mr. Speaker, Bermuda is at a turning point in the
development of its financial services sector. To date,
we have been well served by the rules that we have
applied to ensure that Bermuda’s interests have
been maintained and furthered. In particular, the
requirement for all of our local companies to maintain
at least 60 percent Bermudian ownership has provided
our domestic businesses with the opportunity to become
established and grow recognising our unique situation
as a small, isolated jurisdiction. In recent years,
however, there have been pressures both domestically
and globally for our businesses to have more flexible
ownership structures.
More specifically, Mr. Speaker;
1. local businesses are seeking access to more capital.
It is a tribute to the ingenuity and acumen of our
business leaders that they have been so successful
and that in some instances their businesses have outgrown
the local capital base. It is also timely and necessary
to consider whether a small Island community such
as Bermuda can realistically continue to raise the
necessary capital internally to finance the growth
and cover the risk of all of its businesses. This
is a particularly relevant question within the realm
of financial services, where the businesses may be
focused heavily on international markets. It is important
to consider how to best allocate our scarce resources
and whether, for instance, it might not be better
to encourage local investors to finance local projects
that cannot attract foreign funding.
2. The recently concluded KPMG review has highlighted the maturity of Bermuda as a financial services center and emphasised that we are a well regulated jurisdiction. However, in order to ensure continued high standards, we must be cognisant that businesses must maintain the necessary capital to cover their risks, and we must be prepared to respond to those prudential concerns.
3. The OECD has stated very clearly that it considers the existence of two tiers of business structures within a jurisdiction, with different rules and restrictions applying to each, to be a potentially harmful tax practice. While Bermuda has been accepted as a co-operative jurisdiction that conducts legitimate business, it is recognised that different company ownership structures exist here and we have stated that we shall review this situation. We have also, however, emphatically stated that local needs must be weighed carefully in this review and that any changes contemplated would have to give special consideration to small businesses and industries of local importance. The OECD accepted this approach as a reasonable one for developing our domestic market.
Under these circumstances, Mr. Speaker, I have considered
the best approach for moving Bermuda forward. Earlier
this year I constituted a Ministerial Committee to
review generally the financial services sector and
to make recommendations for the further development
of the financial services sector. The Committee recommended
that the banking sector be relieved of the foreign
ownership restrictions inherent in the “60/40”
rule. The Committee found that in terms of capital
needs, the banking sector was no different from the
hotel and telecommunications sectors, both of which
are heavily dependent on foreign capital.
Mr. Speaker, the facts are indisputable and the logic
of the argument is both clear and compelling. My duty
as Minister is to adapt the existing policy and legislative
framework to enable positive changes to develop in
accordance with Bermuda’s long term interests.
Mr. Speaker, since the inception of the Companies
Act 1981, the Minister of Finance has had the authority
to permit local companies, upon application, to be
assessed on their individual merits, to carry on business
in Bermuda with no limitation on non-Bermudian ownership.
Any local company which makes such an application
to be relieved from non-Bermudian ownership restrictions
must meet a high test in that the Minister must be
convinced that approval of the application will lead
to a positive impact with regard to the following
statutory criteria:
· The economic situation in Bermuda and the
protection of persons already engaged in business
in Bermuda
· The nature and previous conduct of the company and the persons having an interest in the company whether as directors, shareholders or otherwise
· Any advantage or disadvantage which may result from the company carrying on the business in Bermuda
· The desirability of retaining in the control of Bermudians the economic resources of Bermuda
In the case of the Bank of Bermuda Limited, I have
carefully weighed each of these statutory directives
which have served Bermuda so well in the past in order
to determine whether the Bank’s application meets
the test. In essence, I am required to consider whether
the national interest will be served by granting the
Bank a licence.
There are, Mr. Speaker, compelling reasons for granting
the licence which the Bank of Bermuda Limited seeks.
The Bank is a global institution, with operations
in 14 different jurisdictions and over 2,500 employees
world-wide. Significantly, the Bank is competing with
other global businesses that are not restricted in
their ability to access international capital markets
to finance growth and further development. Secondly,
it must be recognised that the provision of international
banking services on the scale presently undertaken
by the Bank inherently involves various elements of
risk. It is essential, for prudential purposes, that
the capital required to mitigate such risks is readily
accessible. Moreover, international regulatory standards
embodied in the new Banks and Deposit Companies Act
1999 impose significant capital requirements upon
banks licensed to operate in Bermuda. As I stated
earlier, one must also consider the advisability of
a small jurisdiction being forced to utilise domestic
equity capital, that might otherwise have been available
to finance domestic initiatives, to provide growth
and risk financing to its home-grown but internationally
focused businesses. Listing on a major stock exchange
is an internationally accepted alternative by which
to address the aforementioned needs for readily accessible
capital, and it is such a listing that the Bank of
Bermuda wishes to pursue. Such a listing is not practical
where ownership restrictions exist.
Notwithstanding the above compelling reasons for granting
the Bank the licence that it seeks, I must also address
certain concerns to ensure that the national interest
is served. Our banking sector is a vital and strategic
component of our financial services infrastructure.
Accordingly, I have weighed carefully the risk of
control of the Bank by foreign shareholders who may
not have Bermuda’s interests and the development
of our domestic marketplace as a priority. As Bermuda
has few banking institutions it is imperative that
any controlling shareholders embrace the national
interests that the Bank presently serves. Other concerns
that I have weighed are the nature of the mind and
management of the Bank, the retention of the head
office in Bermuda, the continuation of the employment
and training of Bermudians by the Bank, the wind-up
of strategic operations of the Bank and the maintenance
of key domestic services.
To meet these concerns, Mr. Speaker, the licence that
I have today issued under section 114B of the Companies
Act to the Bank will impose conditions on the Bank
to:
· adopt a bye-law which will prohibit shareholder
controllers with more than 40 percent of the shares
of the Bank from exercising the voting rights of those
shares in excess of 40 percent without the permission
of the Minister
· report to the Minister on shareholders who have ownership control of 10 percent, 30 percent and 40 percent
· report annually to the Minister on the domestic programs which the Bank maintains including loan programs and community development initiatives
· report to the Minister on training and employment initiatives
· consult with the Minister on any strategic plans to change, wind-up or relocate services overseas
· maintain the Bermudian mind and management of the Bank. This means that the majority of the Board of the Bank must be Bermudian, the head office must remain in Bermuda and the shareholders’ meetings must be held in Bermuda.
I am confident, Mr. Speaker, that the access to capital
from international sources that this licence will
provide to the Bank of Bermuda Limited is warranted
and will be beneficial for both the Bank and, most
importantly, Bermuda at large. As such, I am confident
that in issuing this licence to the Bank of Bermuda
Limited I have met my statutory duty to further the
national interest.
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