when it announced that it will cut its projected profits for the year by $33 million in order to cover potential loan losses.

The $33 million -- out of a projected $38 million profit for the 1998 financial year -- will be used as a provision for potential losses connected with UK subsidiaries which it closed last year.

The Island's second largest bank also announced it was cutting its retained earnings by $30 million to meet proposed accounting requirements for the payment of post-retiree medical benefits and other write offs.

And the bank's board is also debating issuing a debt note to raise $75 million in cash, The Royal Gazette has learned.

The $33 million provision is projected to bring the bank's profit down to $5 million for the year ended June 30, bank president and chief executive officer Calum Johnston said.

This is the second year in a row that the bank has had to take a charge against earnings due to its UK operations.

In 1997, the bank recorded a $10.4 million profit after taking a one-time charge of $20.6 million against what would have been $31 million in earnings.

The charge in the previous financial year was for operating losses and costs of closing the bank's loss-making Singapore subsidiary and UK operations.

Without the charges and provisions, the bank would have recorded a gain of 23 percent this year over the $31 million operating profit of 1997.

In a Press statement, the bank's management expressed disappointment that the "strong success'' of the current financial year was "overshadowed by past strategic miscues''.

The $30 milion charge against retained earnings also includes write-offs against systems costs, reconciliation issues relating to the bank's Bermuda-based operations and outstanding goodwill, said Mr. Johnston.

Retained earnings are the bank's profits after dividends have been paid. They are retained by the bank and become part of its shareholder's equity.

Mr. Johnston said previously the bank had paid medical benefits when charged.

Now a provision is being made for future benefits.

Along with the publicly released news, The Royal Gazette has learned the board of directors is considering whether to issue a $75 million subordinated debt floating rate note.

The issue is being negotiated with Lehman Brothers, Inc. at a LIBOR rate plus 50 basis points. The board thinks the note is "expensive'' Mr. Johnston said and is considering whether to proceed.

"All we are doing is making sure we have enough equity,'' he said.

Full report: Business, Page 29