Finance Minister Eugene Cox yesterday cited HSBC's bid to take over the Bank of Bermuda as just the boost the Island's banking sector needs.

The $1.3 billion cash deal from HSBC for the Bank of Bermuda, subject to regulatory and shareholder approval, will see the lock, stock and barrel take over of the bank by the world's second largest financial services provider.

In a press statement, Mr. Cox said: "When completed, that transaction will boost Bermuda into the front ranks as an international banking centre. HSBC's coming to Bermuda marks a pivotal event in our continuing efforts to develop our country as a world-class capital market. We are already there in insurance and reinsurance, and this transaction will help us move banking to a similar level."

The move follows the Bermuda Monetary Authority indicating in its 2001 annual report that there was room for "modest expansion" of the Island's banking sector including the granting of licenses to foreign banks.

Yesterday, Mr. Cox said: "The transaction is consistent with Government's approach to the development of the financial services sector in Bermuda. Over the last several years, international companies and providers of financial services have become important underpinnings of the Bermudian economy. As employment in hotels, restaurants, and other travel-related establishments has declined, the expansion of financial services and international business has generated enough jobs to accommodate the growing labour force. Consequently, the expansion of financial services has been assigned a high priority."

Mr. Cox granted the Bank of Bermuda an exemption to the 60/40 Bermuda-foreigner ownership rules that bind most local companies in 2000 but under the condition that the bank "maintain the Bermudian mind and management of the bank". Bank management yesterday said that this deal did that and that a poison pill clause put into effect when the bank listed on the Nasdaq last year would only have been used if HSBC had been trying a "hostile takeover" which this wasn't.

Mr. Cox agreed that this transaction was in keeping with Government's intent: "Government understands that the HSBC plans to acquire 100 per cent ownership of the Bank of Bermuda Limited. It will be able to do so under an exemption from the rule that limits foreign ownership of Bermuda companies to 40 per cent of the latter's total capitalisation. You may recall that as Minister of Finance, I granted the Bank of Bermuda Limited this exemption in December 2000."

He continued: "Government is delighted that such a world class financial organisation is interested in Bermuda as a business jurisdiction. Based on an analysis of the information supplied by the Bank of Bermuda, the Ministry of Finance concluded that the HSBC transaction would meet all of the following economic policy criteria for financial entities: sustainability; economic expansion with minimal impact on the country's infrastructure; well-known, respected, global, innovative financial services corporation; augments the array of financial services available to all segments of the Bermuda market; opportunities for indirect business development/expansion; long term creation of employment opportunities and focus on training and development."

Mr. Cox said the Bermuda Monetary Authority still need to have their say: "While there are no legal impediments, the transaction remains subject to approval by the Bermuda Monetary Authority which will be proceeding to conduct a detailed prudential review of the proposal."

In conclusion, Mr. Cox said: "The Ministry of Finance does not foresee any negative long term economic consequences that would result from the transaction. On the contrary, HSBC is exactly the type of world-class bank we would have been hopeful of attracting to Bermuda. The market impact should be positive and beneficial to businesses and households as a result of greater competition and therefore better pricing of financial service products."