THE arrival of Butterfield Bank in Jersey shows that the Island is open for new business, according to the bank’s chairman and chief executive officer, Michael Collins.
The Bermuda-based Bank of N T Butterfield and Son last week announced the acquisition of Deutsche Bank’s banking business in Jersey, Guernsey and Cayman, which will add about 20% to Butterfield’s deposit base and has been welcomed by the markets.
The acquisition means the loss of the Deutsche Bank name to Jersey’s banking register, but it will be replaced by Butterfield, which has its headquarters in Bermuda and has grown significantly, including through acquisitions, in the past three years.
Deutsche Bank is one of the biggest European banks and gained its Jersey licence when the policy was to allow only the largest banks to establish a presence in the Island.
Mr Collins said that he was unsure about the reaction of the Jersey banking regulator to Butterfield’s takeover of DB’s banking business in the Island.
‘However, we were assured that Jersey is very much open for business,’ he said. ‘The markets also welcomed the announcement with an 11% increase in our share price, so that was also a vote of confidence in Jersey and the Channel Islands.
‘This will help us establish a foothold in Jersey, which is an attractive banking market that we have wanted to get into for some time, as well as increasing our scale and market share for our banks in Cayman and Guernsey.’
Mr Collins said that DB’s customer base in the Island had a very similar profile to Butterfield’s existing banking business and he expected that most of the 130 Deutsche staff, including 90 in Jersey, would transfer with the business. The acquisition was not a ‘cost play’ he said – it was a market that they really wanted to be in.
Butterfield, which underwent an initial public offering in New York in 2016, achieved record profits of $153m last year, up 14.6%.
The acquisition of Deutsche Bank’s offshore banking business in Cayman, Guernsey and Jersey, followed almost immediately Butterfield agreeing to buy DB’s Global Trust Solutions business outside the US. This includes about 1,000 trust structures for 900 private clients in Cayman, Guernsey, Switzerland, Singapore and Mauritius.
More than 90% of the staff are expected move to Butterfield and will continue to offer DB clients trust solutions. Butterfield Trust already has close to $100bn in assets under administration.
These two acquisitions, which follow four others in three years, give the group a new presence in Jersey and Singapore, which Mr Collins said furthers their aim of creating a comprehensive network of offshore banking and trust businesses in high-quality small-island jurisdictions with a very smart client base.
With no ambitions to become a global bank, Mr Collins said that they planned to grow further by acquisition, perhaps taking on more offshore business that the bigger banks no longer want.
With its history as a community bank and wealth manager going back to Bermuda in the 1850s, Butterfield has a clear strategy for the future of its businesses and is confident that the offshore market will continue to grow, despite many pressures.
The need to increase compliance, to meet moving goalposts, will continue to be a focus, Mr Collins said, but Butterfield has accepted that this is the ‘price of a ticket to the game’.
The bank continues to invest heavily in compliance, which means about 540 controls had to be tested at the bank in order to meet the US’s Sarbanes-Oxley Act, for example. The bank also has 70 full-time staff in Halifax, Canada, constantly monitoring the business and looking for suspicious changes in banking activity.
The upside of all this activity is that the bank is doing better business, Mr Collins said, but the downside is that they know the consequences if they miss anything. Just one bad account out of 8,000 relationships and the offshore bank gets punished much more severely, he said.
The positive aspect of spending so much on compliance, in addition to having to report to 65 different tax authorities under FATCA, is that there is not much more the bank needs to do, except use that as a competitive base for growing the business.
The offshore world might continue to suffer from a bad reputation because of tax issues, but Mr Collins believes that this will dissipate over the next three to five years.
Butterfield is also in a unique position as a Bermuda-based bank, which requires a strong balance sheet. None of the main banking jurisdictions in which it operates has a central bank acting as a lender of last resort so it has to hold a lot of capital, which for Butterfield is a 20% ratio compared with the US average of 8%.
They also have only $3.5bn in loans and are limited to the amount of risk they take on, as in the bank’s $10bn balance sheet, which is already twice the size of Bermuda’s entire economy.
‘But we are doing well, with a return on equity of 22%, so we don’t need to take on a lot of risk and we have a safe, simple balance sheet,’ Mr Collins said.
‘We also feel confident coming into a market like Jersey, because we’ve done it all in the past. Our approach is centralised and we have the same strategy in all jurisdictions. We’ve just got to do things better and better, and as the world becomes more transparent so it’s better for all of us.’
Mr Collins said that the plan is to slowly gain market share in Jersey and ensure that employees and clients are happy before moving on to other opportunities.
Fabrizio Campelli, global head of Deutsche Bank Wealth Management, said that the sale to Butterfield was part of their strategy to continue to simplify their organisation and reposition Wealth Management for growth in their core markets.
