Bermuda's main union chief has claimed that the Bank of Bermuda is considering a takeover bid by the multinational Hongkong Shanghai Banking Corporation (HSBC).

And Bermuda Industrial Union (BIU) president Derrick Burgess said sources told him Bermuda's most successful bank had approached Government to ask for permission to strike a deal but that it was denied following a Cabinet meeting.

Asked whether it was true yesterday, Premier Jennifer Smith said: "No, not that I know of. Perhaps there has been an approach to someone in Government."

In a statement, the Bank of Bermuda said it did not comment on potential mergers or acquisitions.

The development came as Mr. Burgess revealed the extent of an at least one-time close relationship between the Bank of Bermuda and the United Bermuda Party (UBP), detailed in a "very confidential" internal memorandum from 1990 which was written by the bank's former president Donald Lines.

Mr. Burgess said he was worried that, should the UBP win this Thursday's election, the new government would allow the proposed deal to go ahead.

"We are aware that the bank is one of the major financial supporters of the UBP. We believe Bermudians should be aware as a major decision such as this would in fact impact on the lives of a large number of Bermudians whether through employment or as customers of the bank."

Mr. Burgess said a sign of the alleged takeover deal was the fact that the bank fired 14 of its female employees last month because they sent "indecent" material through the office e-mail system.

"We believe that this is the beginning of a purge of Bermudian workers from the bank in order to make way for foreign workers from one of the banks major overseas partners," he said.

"We have already been reliably informed that supervisors and the heads of departments in the bank have been asked to carry out intensive performance appraisals on staff." He showed examples of the sexually themed art for which the employees, all of whom were Bermudian, were fired.

"Those pictures are no cause for dismissal. I mean if it's against the bank's policy then there is progressive discipline. The bank can do things with computers which block that kind of thing from coming through. It's easily done, so I'm told at least."

Mr. Burgess said he believed a "deal" to have been struck between the Bank of Bermuda and the UBP. He said an indication of this was the party's tentative agreement with the Island's main banks for mortgages with interest rates of four percent or less to be given to first-time buyers of specially constructed affordable housing.

"You see this four percent money that they've offered, and that's only for the first five years not for the entire 30 year period of the mortgage. There have been talks and there's no doubt about that. It seems like a deal and, if the other party was to win, that this would be part of the deal. I'll give you this if you give me that. It seems like it could work that way but I don't know, they'll probably deny that."

On the alleged proposed deal between HSBC and the Bank of Bermuda, Mr. Burgess said he was "alarmed" and added:"Undoubtedly this will result in the loss of hundreds of jobs held by Bermudians. I have been made to understand that the bank met with cabinet to ask them for approval of the sale. I understand that the Progressive Labour Party (PLP) Government turned down the request.

Currently, takeovers not approved by Government are prevented by clauses laid down at the same time the Bank of Bermuda received exemption from the 60/40 ownership rule in 2000.

The exemption which was granted by Government to allow the company to list on the Nasdaq stock exchange.

Mr. Burgess said he was worried that if "our flagship" were sold, "other local companies would follow suit to sell to foreign investors".

"The Bank of Bermuda is one we should keep here. We have much foreign investment here at present. The major hotels are owned by foreign investors. We can't keep selling Bermuda out to the rest of the world." Asked if such a deal might be justified in order to stay competitive, Mr. Burgess replied: "The bank reports millions of dollars of profits every year so the equation is a very healthy equation regarding cost and revenue, so in that regard they are doing very well. For a bank that size in a place this size they are doing very well."

Yesterday, the Bank of Bermuda hit back at the attack on its "political neutrality".

A spokeswoman said: "The bank's management and Board decided many years ago to adopt a politically neutral stance in all jurisdictions in which we operate, including Bermuda. We certainly do not back one party against the other."

She challenged the fact that Mr. Burgess backed his argument up with a memo from 1990 and said: "He is showing a lack of awareness with regards to the institution as we are today. Indeed, as the major financial institution on the Island, the bank has regular discussions with the government of the day and to a lesser extent the opposition. Our focus is on running a successful and profitable organisation that benefits our shareholders, the majority of whom are Bermudian."

On the issue of the fired workers, the spokeswoman said the bank's policies in this regard were "industry standards" which have "serious consequences if breached". "It is our duty as an ethical employer to enforce these policies as we have done and will continue to do. There is no underlying agenda in this respect. Our policies are quite clear in this regard, as are the consequences of breaching them."

She added: "We have however publicly spoken about our need to improve efficiency and that this may affect our headcount in all our global offices. This is how a business remains competitive and is crucial for our survival. The issue of concern specifically for Bermudians in this context is misdirected. In the long run, it is Bermudians who benefit from a successfully run bank, from our shareholders, clients to employees."