The Bank of N.T. Butterfield & Sons Ltd has been given an exemption to the 60/40 ownership rules which restrict foreign investment in Bermuda companies.

But the Island's oldest bank said it will not be using the exemption to list on any foreign stock exchange, such as the Nasdaq, in the foreseeable future.

Bermuda's second largest bank, which has a market capitalisation of $535 million, has been granted the exemption by Finance Minister Eugene Cox, the bank and minister announced yesterday.

And the bank said that the move was made to increase the desirability of stocks and to allow for any future need to raise capital for acquisitions.

The exemption is the second in the non-telecommunications market to be announced by the Minister of Finance. The Bank of Bermuda was granted an exemption in December 2000, paving the way for its desire to list on the Nasdaq.

The Bank of Butterfield said it would use the exemption to "raise additional capital should it be required to facilitate further acquisitions overseas or in Bermuda''.

Richard Ferrett, executive vice president and chief financial officer, said: "It is a very positive development for the bank. We are clearly pleased to be relieved of this requirement on 60/40 ownership.

"It is not going to mean a huge amount in the short term as the bank is well capitalised and is reporting record earnings.

Shares rise following bank's exemption joy "But going forward it is necessary to have the flexibility to finance any significant acquisitions overseas. And it is very significant to our stakeholders.'' Bank of Butterfield shares shot up after the news to close at a record $27.25, with nearly half a million worth of shares sold during yesterday's trading.

The rise in the stock price pushed the Bermuda Stock Exchange index to within 6.7 points of its all-time high of 2,444.64, last achieved after Bank of Bermuda stocks took off after it announced it had been granted exemption from the rule.

But there are a list of conditions which will make sure the bank stays in Bermuda and remains committed to the Island, similar to those signed up to by the Bank of Bermuda in December, Mr. Cox said in a statement.

The rules address fears that the bank would be swallowed up by a giant American corporation such as Chase Manhattan and include laws that mean it will be difficult for anyone to come in and take over or buy the bank without going through the Minister of Finance.

Mr. Cox said: "There were compelling reasons for granting the licence which the bank applied for. The bank is a global institution with operations in five different jurisdictions and approximately 1,200 employees worldwide.

"Significantly the bank is competing with other global businesses that are not restricted in their ability to access international capital markets to finance growth and further development.'' The Bank of Bermuda and the Bank of Butterfield had both been seeking an exemption from the rule that means that 60 percent of the bank has to be owned by Bermudians or Bermudian businesses.

Over two years ago the Bank of Bermuda began a campaign to allow them to get more foreign investment. The Bank of Butterfield submitted its application for exemption last fall.

The Bank of Bermuda yesterday congratulated its rival bank on the licence decision.It said the reason it wanted the exemption was to list on the Nasdaq, as it was unlikely the Nasdaq would allow the bank to float stock with the ownership rule in place.

Both banks have said their stock price on the Bermuda Stock Exchange is undervalued and allowing foreign capital would be good for shareholders.

Business in Bermuda is separated into local business, which is subject to the ownership laws and includes banks, shops, transport companies, media etc.

which trade in Bermuda, and international business, which includes insurance companies which are incorporated here, but do not trade in the local economy.

The move by the Minister of Finance comes after the Organisation for Economic Cooperation and Development (OECD) stated that it considered the existence of two tiers of business structures as a potentially harmful tax practice.

Bermuda, which was accepted as a cooperative jurisdiction by the OECD, stated it would review the situation, and the ruling is a move toward this.

See Business Page 27