Bermuda's largest bank, the Bank of Bermuda, has approved a takeover bid by multi-national bank HSBC Holdings Plc - the world's second largest bank by market value - for $1.3 billion.

But the move doesn't come without costs for the Bank of Bermuda including what were cited as "meaningful" staff redundancies in the next three years.

At a joint press conference with HSBC yesterday morning, Bank of Bermuda management said that they had looked at ways of staying independent but that selling out to HSBC was the best way to go if the bank wanted to continue to grow and be competitive in the current market. An unspecified number of job losses for some of the bank's 3,000 global staff - with about 1,200 of those posts being in Bermuda - were cited as "unavoidable" and would have occurred whether or not the bank was bought out.

In the deal, HSBC takes over the bank's operations in Bermuda and in the Cayman Islands, New York, Bahrain, Dublin, Geneva, Guernsey, Isle of Man, Jersey, London, Luxembourg, Cook Islands, Hong Kong, Japan, New Zealand, Singapore and South Africa. As compensation, Bank of Bermuda shareholders will receive $45 per share - $40 from HSBC and a $5 special dividend from the Bank of Bermuda - 16 percent more than the average closing price of the bank's shares on the Nasdaq over the last three months, according to a joint press statement announcing the deal yesterday.

The Bank of Bermuda is listed on both the Bermuda Stock Exchange and on the Nasdaq but its shares will cease trading once the deal goes through. HSBC, which trades on New York, London and Hong Kong exchanges, said it will eventually do a secondary listing on the BSX. Investors will also have the option of re-investing in HSBC shares.

Shares of the Bank of Bermuda surged on the Nasdaq yesterday, jumping $4.89, or 12.2 percent, to $44.89, a new 52-week high. They were unchanged on the BSX at $38.50.

Although the sale is subject to shareholders and regulators, bank chairman Joseph Johnson yesterday said they expected to close during the first quarter of 2004.

The proposed takeover has already been approved by Bank of Bermuda directors, with Merrill Lynch acting as financial advisor and issuing a fairness opinion on the transaction.

Yesterday, in a separate press statement, Minister of Finance Eugene Cox appeared to give his blessing saying this was a "pivotal event in our continuing efforts to develop our country as a world-class capital market".

Bermuda Monetary Authority chairman Cheryl-Ann Lister told The Royal Gazette she did not wish to comment on the transaction other than to say that it remained subject to "formal prudential review" by the BMA - the regulatory body overseeing the Island's financial services sector and the granting of banking licences. The sale was also said to be subject to regulatory approval in other jurisdictions.

Bank chairman Joseph Johnson yesterday called the sale the best thing for the bank: "It is the right transaction, at the right time, with the right partner. Our future as part of HSBC is stronger and brighter than if we were to remain independent."

Rumours that the bank could be taken over by HSBC had been circulating for months, with the Island's main union boss, Derrick Burgess, saying ahead of the July 24 General Election that the takeover was a possibility.

The bank, which did not confirm or deny speculation at that time, yesterday conceded that talks had been under way since early in the year.

Officials from HSBC and the Bank of Bermuda said the make-up of the Bank of Bermuda's board and senior executive were to stay the same with the exception of one executive, as yet unnamed, who was said to be departing the bank. Bank management said executives would receive no additional benefit options or compensation under the HSBC deal.

London-based HSBC also said the Bank of Bermuda would remain headquartered on the Island. In addition, HSBC said it would move some of its operations - including its trust business - to Bermuda. Domestically, the bank will be rebranded with both the logo of the Bank of Bermuda and the hexagon logo of HSBC. On a global scale, the bank's international offices could merge with HSBC's operations.

HSBC group general manager Iain Stewart, speaking at the press conference yesterday morning, said the Bank of Bermuda was seen as a good fit with HSBC's existing business. He added that HSBC had been particularly impressed with the Bank of Bermuda's fund administration business - Global Fund Services - and its private banking business.

Mr. Stewart added: “We see Bermuda as a preeminent offshore banking centre and a blue-chip jurisdiction.”

HSBC is reported to be the world's second largest financial services provider with assets of US$983 billion as of June 30, 2003. The Bank of Bermuda is Bermuda's largest bank with net assets of $11.1 billion at 31 December, 2002 and assets under administration of $105 billion.

Founded in 1889, Bank of Bermuda has assets of $11.8 billion and 3,000 employees. The lender earned $83.9 million before taxes, or $2.53 a share in 2002, HSBC said, pricing the transaction at about 18 times earnings. Bank of Bermuda's board of directors will recommend that shareholders accept the deal at a special general meeting. Although a date has not yet been set for the shareholder vote a bank spokesperson yesterday said it would likely occur in the first quarter of 2004.