Carlyle leads $550m offshore bank deal

The chance to inject equity into a struggling bank has once again brought together private equity and institutional investors.

The Carlyle Group and the Canadian Imperial Bank of Commerce (CIBC) led a syndicate that invested $550 million into Butterfield & Son, a Bermuda-based bank that was established in 1858 and has suffered losses stemming mortgage-backed securities write downs and higher commercial loan loss provisions.

The $550 million equity investment represents 82.5 percent of the pro-forma ownership of Butterfield, however this percentage is expected to be reduced in a forthcoming rights offer.

The syndicate's others investors include The Bermuda Government Pension Funds, hedge fund Goshen Investments and UK charity The Wellcome Trust. Wellcome last year co-invested with Carlyle, the Blackstone Group, Centerbridge Partners and WL Ross on the $900 million rescue of Florida retail bank BankUnited.

The Butterfield deal “is part of a comprehensive plan to increase capital and remove risk from the bank’s balance sheet”, according to a statement. “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.”

Carlyle and CIBC each bought about $150 million-worth of common and mandatorily convertible preference shares, while the other investors purchased a total of $250 million of the same types of shares at $1.21 per share. The price is a 27 percent premium to the bank’s pro-forma book value per share as of 31 December 2009.

Butterfield’s existing shareholders will have the chance to purchase up to $130 million of common shares at this price in a Bermuda Stock Exchange rights issue, proceeds of which will in part be used to repurchase shares issued to the institutional investor syndicate. If the rights offer is fully subscribed, shareholders would own 37 percent of the bank, while Carlyle’s and CIBC’s stakes would not exceed 22.8 percent each.

The Bermuda-based bank will be led by Bradford Kopp, who was previously its chief financial officer. He succeeds Alan Thompson, who has retired.

Butterfield provides community banking in Bermuda, Barbados and the Cayman Islands. It also caters to corporate, institutional and retail clients with services including wealth, trust and asset management in the Bahamas, the Cayman Islands, Guernsey, Hong Kong, Malta, Switzerland and the United Kingdom.