from Bermuda's 60/40 ownership rule.

The Bank of Bermuda hopes to receive a secondary listing on the Nasdaq stock exchange in June. The move is conditional on the bank getting exemption from the rule requiring local companies be 60 percent owned by Bermudians.

President and chief executive officer Henry Smith and chief financial officer Edward Gomez, in an interview with The Royal Gazette , said a secondary listing would address the undervaluation of the bank's shares and provide ready access to capital if necessary.

"We are trying to release trapped value that has been created over time but has not been realised in the share price and we are trying to enable the bank's future by giving it access to capital markets,'' Mr. Gomez said.

In making a case for the bank, top executives are essentially arguing it has outgrown the Bermuda market, and needs to expand its base. In the future capital would be necessary to expand the bank's presence, possibly though a major acquisition.

"We need to step up on to the world stage,'' Mr. Smith said.

The reasoning goes like this: A secondary listing would provide more liquidity in the bank's stock since there would be a larger market of more buyers.

The bank's executives believe increased liquidity could boost the stock to the mid-$40 range, a gain of about 50 percent over its present value of $32 per share on the Bermuda Stock Exchange.

The figure is based on comparison with State Street Corp., Northern Trust Corp. and US Trust Corp. Bank executives consider the three banks in the same peer category, although they deal with much larger sums of money.

The three do the same type of business which the Bank of Bermuda depends on -- asset management, private banking, and investment services.

"They are fee-driven trust banks like ourselves,'' Mr. Gomez said.

An analysis of earnings per share and book value compared with share price late last year showed the bank's stock would have been trading in the mid-60s range (The three US banks stock prices have shot up by between $9 to $18 since the comparison was made).

However Mr. Smith said the bank's efficiency ratios and performance level doesn't quite match similar fundamentals at the three banks. Hence the comparison was adjusted down by a similar factor.

"Our performance doesn't justify these prices, but we are still severely undervalued,'' Mr. Smith said. "We're working on becoming a more efficient organisation. That is starting to show in our numbers.'' Yesterday, the bank's share price reached a record high of $32, more than 80 percent higher than a year ago.

Mr. Smith is quick to point out the Bank of Bermuda's performance is adequate.

"Our performance is pretty good in terms of most banks,'' he said. "We are trying to compare ourselves with the best who are the standards in the industry.'' The need in the future to raise capital would also be addressed through a secondary listing, Mr. Smith said. With a boost in share price the bank would be able to raise the type of capital it might need more effectively. The bank would get more money per share.

"Our intention is to grow the business,'' Mr. Smith said. "If we sit still or shrink, the future doesn't look positive. We need to have the resources to carry this organisation forward. There is going to have to be some acquisiton in the future. You can't sit and be comfortable. Our competition are the biggest banks in the world and we have to raise ourselves to that level of competition.'' A listing in the US would also assure potential clients of the bank increased access to the capital needed to protect clients' assets in case something went wrong. Since there is no lender of last resort in Bermuda, clients consider the bank's $415 million capital base as its backing.

The bank has kept a high capital ratio to help alleviate such concerns.

Currently the bank's capital ratio is 13.5 percent. In the US the requirement is eight percent. Bermuda requires a ten percent capital ratio, while the bank has a self-imposed 12 percent guideline.

"The 13.5 percent capital ratio is conservative by any measure,'' Mr. Gomez said. "That's because we're extremely conservative. It's inefficient because it depresses the return on equity.'' The private members' bill being put forward by the bank for the upcoming parliamentary session would seek to exempt it from the 60 percent ownership provisions in the Companies Act and the Banks Act. The bill would also restrict individual or group ownership of the bank to a ten percent maximum and mandate that the board of directors be at least 60 percent Bermudian.

Mr. Smith said the two provisions would be an effective guard, along with a poison pill defence put in place last year, against a possible takeover attempt.

"You really only need about 20 percent ownership of a bank to have effective control,'' Mr. Gomez said. "There has been foreign interest in this market which has us concerned.'' The bank is arguing for exemption based on the fact that 57 percent of its $300 million in annual revenue comes from its 17 overseas offices. Meanwhile corporate and private client business generates 80 percent of its revenues, while retail and other business generates the rest.

The Nasdaq is an electronic trading market on which the bank would be considered of average size in terms of market capitalisation. There are 770 banks currently listed on the Nasdaq.

The Bank of Bermuda has about 6,000 shareholders of which about 80 percent are Bermudian. The bank employs 2,325 employees of which 51 percent are based on the Island.

Finance Minister Grant Gibbons was away from the Island on a Bermuda International Business Association briefing tour in Europe and could not be reached for comment.

Shadow Finance Minister Eugene Cox said the party would decide on whether the bank should be exempted from the 60/40 provisions once members had studied the details in the proposed bill.

The Bank of Bermuda reported earnings of $27.4 million for the six months to December 31, a gain of 40 percent over the same period 1996.

RISING PRICE -- The Bank of Bermuda's share price over the last 12 months has risen by more than 80 percent to a high yesterday of $32. But bank officials say the stock remains undervalued compared to US banks with similar areas of operation.