Bermuda commercial bank reborn
In a current TV advertisement for the Bermuda Department of Immigration, a headquarters officer tells a woman who wants a new passport issued in less than 24 hours: “Girl, this ain’t Burger King! You can’t have it your way.”
At Bermuda Commercial Bank (BCB), the Island’s recently invigorated banking institution, the reverse applies. You can have it your way. For once, in an age and an industry where the customer is always wrong, what BCB’s customers want is the only product the bank sells.
An example is in order, one with which you may compare your own experience. Say you want to create a term deposit that will last 71 days, because that’s when the matching liability falls due. Would your bank encourage you, or even allow you to do such a thing, or would it force you into a 60-day deposit, with the balance of the time spent in a money market fund? BCB will quote you for, and set you up with, a 71-day deposit.
BCB’s banking services division introduced a new product to formalise this informality. Granville Gibbons, manager, marketing and product development, explains: “It’s called Flex Deposit. Our motto is: ‘You set the date; we negotiate the rate.’ We introduced this in response to demand from clients, which they felt wasn’t being met elsewhere. Many financial institutions treat their clients as institutions, whereas we are people dealing with people, who are acting on behalf of institutions.”
The flexibility is part of a programme that runs throughout BCB, which Gibbons refers to as “concierge service-centric”.
Glenn Phillips, general manager, banking, says that this level of service differentiates BCB from its competition. So who exactly is BCB’s competition? “Our competition isn’t local,” Phillips says. “We offer a banking product that is different from what’s on offer locally. By and large, our competitors are some of the smaller to mid-sized banks in New York and certain parts of the US, in that we offer a service tailored to the client’s needs. We will give you what you want, as opposed to asking you to conform to what we want you to buy.”
Another area in which BCB differentiates its service is in human contact, according to Gibbons. “Our customers are sophisticated, and they’re happy to operate online,” he says, “but when something goes wrong, they want to be able to pick up a phone and speak to someone. Not ‘Press 223; this call may be monitored for your convenience’. That’s not what we do. ‘Hello, how can I help?’—that’s what we’re striving for. We have no voice system, where everyone else is moving towards only voice systems. You could describe us as very modern on the level of sophistication, but a little old-fashioned in terms of providing a quality service.”
The return of the private bank in Bermuda? BCB is not exactly Burger King either—you won’t get fries with deposits—but the bank is keenly establishing a new identity in Bermuda’s small but crowded banking sector.
Four niche players
Bermuda has four locally licensed banks. Bank of Bermuda has essentially become a branch of HSBC. Bank of Butterfield, which recently experienced investment-related difficulties and was largely acquired by Canadian investors, is a regional bank, operating throughout the Caribbean. Capital G, which grew out of a layaway deposit company, offers community banking services. BCB had, until recently, focused exclusively on its corporate clientele.
By appealing to different market sectors, each of the four banks has been able to capitalise on its size and history. By limiting its licensees to four, Bermuda has always avoided the laissez faire taint that Cayman earned when it had more than 600 banks and ‘know your customer’ made such arrangements all but impossible in the offshore world.
Majority ownership in BCB was recently acquired by a group of international investors. The new controlling shareholder, Permanent Investments Limited (PIL), is owned and managed by a group of four investment funds and financial companies with global interests.
They are represented in Bermuda by well-known former Butterfield president and chief executive officer Michael Collier, Warren McLeland and Eric Stobart. All three have a wealth of international banking experience.
A new day has thus dawned for BCB, and change is in the air.
BCB has relationships with many of the insurance companies on the Island. Its focus on corporate business—which is being broadened to include individual and family clients—means that it already offers a full range of banking services to local and international clients.
Corporate banking in Bermuda can be summarised into two basic functions, says Horst Finkbeiner, chief operating officer and a director of BCB. “One is cash management functions, including such activities as the ability to make payments in and out, placing funds on call or on fixed deposit, and making cash sweeps into investments. The second is holdings assets, such as US portfolio investments, carrying out the necessary custody work, providing the accounting, dealing with corporate instructions, collecting interest payments, purchases and sales, and so forth.”
The advent of the Internet has changed the way in which banks provide many of these services. Online access allows clients not only to monitor and review account activity, but to do as much of their banking business online as suits them. “Wherever your funds may be, you need electronic access,” Finkbeiner says. “When we provide treasury services for the insurance and reinsurance industry, for example, we are essentially providing them with a banking platform from which to manage their money.”
A number of BCB’s clients are insurance or reinsurance companies, or businesses related to the industry, including captives, insurance and reinsurance companies, managers and insurance consultants.
“For the insurance industry, there are no half measures,” says Phillips. “We have to provide a full service to all our customers. So, we offer letters of credit, foreign exchange, spots, forwards and hedging services. We will collect premiums and pay claims, in as many as 84 currencies.”
Finkbeiner chimes in: “We have clients who want to hold funds in currencies outside the standard four or five. We do that. We can make payments globally in any of those currencies.”
Gibbons adds: “Others encourage you to stay within the mainstream, probably because it’s easier for the bank to make a payment, say, in US dollars. But with us, if you want to be exotic, we will encourage you to be exotic.”
BCB offers an institutional liquidity fund with a very highly rated fund manager, as a cash management tool. “Normally, the entry level for this fund is $1 million,” Phillips says, “but we pool smaller portions to create an institutional deposit. It’s ideal for organisations without their own treasury or cash management functions.” Captives come immediately to mind in this regard. BCB has its own trust company, and can arrange special purpose vehicles, such as Section 114 trusts. “We have fund clients where the fund is structured as a unit trust, and another structured as a segregated cell company,” Finkbeiner says. “We’re very flexible in that regard.”
Conservative by nature
BCB is building its ability to lend against assets held in custody, and other avenues of lending, which have not been a core competence. “We are a conservative bank,” Finkbeiner states, with a degree of understatement, in that BCB, in comparison to many of its competitors, almost has the profile of a deposit-taking company.
“We weren’t involved in any of the risky and now discredited lending techniques that proved so disastrous for the industry,” Finkbeiner says. “We weren’t involved in property development. We didn’t invest in any of the kind of investments that have caused such pain in the last couple of years. We’ve had no losses or write-offs from any of that.”
Old-fashioned banking: how the meaning of those words has changed since 2007.
The smart money
In a soft insurance market, initiatives such as Solvency II are requiring companies to hold a larger ‘cushion’ at exactly the moment when interest rates are as low as they have been in living memory. Treasurers thus face double jeopardy. Given the crunch they face, are companies becoming smarter about their banking arrangements?
Yes, says Phillips. “They’re looking for efficiencies, looking to reduce costs and to improve returns. Plus, there are a lot more instruments to choose from today than we saw in the marketplace in the mid-1990s. From a US perspective, since the Glass-Steagall Act in 1999, we have seen the emergence of sophisticated investment structures and an increase in cash management requirements. The markets are savvier than they used to be.”
Finkbeiner adds: “Years ago, you’d see companies parking cash and not doing much with it. What we see today is much tighter management of cash balances. We have to, as an absolute minimum, keep up with that increasing sophistication.”
Finkbeiner recalls a conversation he had a day or two earlier. “Someone said, quite rightly, that there’s no room in this business for the talented amateur. It’s become a complex and highly regulated business. There’s a degree of care and prudence required now that was not always there.”
BCB has recently signed contracts for a new banking system and other electronic systems. “We’re building new products, such as the Flex product,” Finkbeiner says. “We’re looking at strategic acquisitions to build up the level of services that we offer and our overall strength. The investor group that we work with comprises very experienced banking people.”
In closing, he summarises the bank’s ambitions thus: “We don’t want to be the biggest financial institution on the block,” he says, “but we do want to be the best.”
Bermuda Commercial Bank’s website is: www.bermuda-bcb.com