A strong competitive position

Following a recent positive S&P rating report which rated the bank A-, Butterfield’s Managing Director Conor O’Dea speaks to The Journal about how the bank is poised for future growth and what Cayman as a jurisdiction needs to do to help the financial services get to that position.

In recent months Butterfield have ramped up their profile, with a wider reach out to the community via various initiatives with the intent of providing a better understanding of the bank’s position within its customer base.

“We’ve been working on a number of projects, such as introducing new state of art technology, Young Savers accounts, new Visa Signature and Platinum credit cards and significant ongoing financial support to education and cultural efforts. Despite economic challenges we have increased our financial support of charities, education and culture. In addition, we have grown our loan book and advanced credit to hundreds of customers locally despite economic uncertainties. This all helps to underscore our stated commitment to our customers and the community and show that we   believe in Cayman and the business opportunities despite the current worldwide economic challenges,” O’Dea says.

Strength in numbers
After a couple of years of losses at Butterfield Group level, Butterfield has worked solidly to create a strong and well capitalised balance sheet that is backed by its recent S&P rating. In particular, the $550 million of capital injected into the bank earlier this year plus a restructuring of the bank’s post-retirement health plan has helped to create the current  strong capital position, as noted by the S&P rating report.

Following a sale earlier this year of structured securities, Butterfield  also ensured that the risks in the securities portfolio are now “modest”, according to the S&P report, O’Dea furthers, “our funding and liquidity are very conservative. Our loans are less than 50 per cent of customer deposits, which is also extremely conservative.”

That percentage is, according to the S&P report “much lower than bank peers’”.

O’Dea says that the fact that Cayman is now in a two-year old recession has undoubtedly hit the economy and people hard and this situation has created a lot of challenges for banks, thus keeping the loans to customer deposit percentage at such a low level has created a very conservative balance sheet for Butterfield.

The S&P report notes Butterfield’s strong competitive position both in Bermuda (the bank’s head office jurisdiction) as well as the Cayman Islands, because of its well-diversified revenue base which means the bank is not purely dependent on net income (in an environment when interest rates are so low). “We have strong banking, asset management and fiduciary services in both locations,” O’Dea confirms. “In addition, we have operations  in both Guernsey and London where we offer a mix of those services.”

Economic constraints
That said, O’Dea comments that all banks worldwide are finding it a struggle when it comes to earnings especially in this low interest rate environment.

“We are getting to a stage in Cayman where we are “overbanked”. In absence of growth, everyone is aggressively chasing market share as the economy contracts. The bank’s focus therefore will be on generating steady and growing net income throughout 2011 with a view to creating value for shareholders,” he states.

Although there have been redundancies of both ex-patriot workers and locals since the recession within the financial services industry, O’Dea says he is proud of the fact that Butterfield has not had to resort to such lengths to keep competitive.

“The longer the recession continues, the more challenging this becomes for all businesses,” he says.

However, O’Dea is optimistic that Cayman is now at, or near, the bottom of this current economic downturn and he firmly believes that government and the private sector need to join forces and properly plan, take and then execute decisions that will ensure that Cayman catches the economic growth  wave that he anticipates will then emerge.

 “We need to look back at the history of how the Cayman Islands became such a great place for financial services: at a people level, it had a welcoming environment for overseas expertise married to local expertise and knowledge and a nurturing environment for young talent. It’s was a simple model but one that worked. We need to cut through all the red tape that currently mires the business and working environment and simplify our offering. That way we can get back on track and embrace the opportunities that are out there for these islands. We need to craft our future now.”