A source close to the Bank of Bermuda last week said shareholders disgruntled with the bank?s proposed sale to multinational banking giant HSBC could still vote in favour of the deal as a means to preserve the value of their investment.

The critic of the deal, who did not wish to be named, said he knew some of the bank?s largest investors were unhappy with the HSBC deal that was announced at the end of October. But he predicted that these same shareholders felt they would have to agree to the sale if they wanted to preserve the value of their investment.

Under the terms of the $1.3 billion sale to HSBC, investors will receive $40 from the buyer and a $5 special dividend from the bank. But the man said the feeling held by some significant shareholders was that were the sale not to go through, there would be a ?total implosion? at the bank resulting in a loss of confidence leading to the bank?s share value dropping dramatically.

He said there was already the feeling that the bank had suffered under current management, and that if the deal was to fall apart they would lose all credibility.

?The bank has not grown in the last ten years,? he said, and cited management as building their own personal interests over the interests of the bank.

He added that management had not been good stewards with their focus having been pushing up the the bank?s share price ? something they could directly profit from as they hold significant stock options.

?They (management) were so busy pushing up the price of the shares, they did not invest in building up the bank?s foundation. I know some of the big shareholders are not happy but their shares could collapse so they may vote in favour to preserve the value of their investment.?

He concluded: ?I am disappointed that the people left in charge did not do a better job. They have just worked for their options value, and the board was party to it. Their own personal interests got in the way of the best interests of the Island, and the bank and they let shareholders down.?

The options that the bank executives stand to cash in at the time of the sale also seem to have raised the ire of staff with employees telling The Royal Gazette that was especially true of those at the middle management level. Several employees voiced these concerns on an anonymous basis. (See related story)

Although they conceded that employees were also able to cash out the options they held under the same plan as executives, they said the bank?s leaders stood to profit much more.

The reason for this, they said, was because senior management had been enrolled in the bank?s share option plan from an earlier period ? executives were given options in June, 1997 while employees were only granted them in September, 2000 ? when the bank?s share price was lower, and therefore the ?strike? price was much lower, meaning executives stood to profit from a handsome margin between earlier prices and the $45 sales price.

All options will become fully vested and exercisable if the sale to HSBC is approved by shareholders.

It is not clear exactly how much senior executives at the Bank of Bermuda stand to make on their options as only aggregate and average exercise prices were revealed in proxy materials released earlier in the month. Options, which normally may not be exercised for a specific period of time, will become ?fully exercisable and vested upon the amalgamation?, according to documents filed by the bank.

The shares that directors and senior management reportedly held, as of the record date for the HSBC vote, which was November 24, was more than 2.5 million in options. Those options, with 112,552 held by directors and some 2.4 million by senior management, are exercisable at an average price of $35.59 and $33.92 respectively.

As a whole, employees (including senior management with their 2.4 million) held 3.97 million in options at an average exercise price of $40.57.

Broken down, senior management holding 2.4 million in options at an exercise price of $33.92 will imputedly make $11.08 on each of their options when the $45 pay out is made.

At $11.08 on 2.4 million shares, the executives stand to make together an imputed profit of nearly $26.6 million, but bank insiders say the executives could actually make much more.

Even the options initially granted ? 725,000 options in June, 1997 ? would have given senior management shares worth more than $30 million at a sales price of $45.

Those 725,000 were granted at an exercise price of $20, meaning the original options, if as yet unexercised, would give executives a cash out of $32.6 million, upon completion of the sale.

As they would collectively have bought the shares for $14.5 million, the options would yield a gain of $18.1 million were they all to be sold at the time of the sale.

In addition to the options held, the bank?s five most senior executives ? CEO Henry Smith, COO Philip Butterfield, head of private client services Wayne Chapman, head of banking services Michael Collins and head of the bank?s fund administration arm, Global Fund Services, Paul Smith, are together due close to $7 million in cash and a further $4.7 million in HSBC shares if they reduce the bank?s head count by 150 people, or by $12 million in salary costs, while at the same time retaining a significant number of specified ?key? staff, in the first year after the sale. Mr. Smith?s bonus payment is not tied to the targets, and is to be paid when he leaves the bank, which is reportedly to be within the first year of the bank?s takeover.

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?Shareholders vote on the deal on February 16 with a minimum of 75 percent of one-third of the shares having to vote in favour for the sale to close.