Bank of N.T. Butterfield and Son Ltd. president and chief executive officer Calum Johnston has slammed previous management for past mistakes in growing the bank's overseas operations.

In a speech on Friday before the Chartered Institute of Bankers he also emphasised the bank's overall capital strength, which include what would have been record profits of about $38 million for the financial year ending June 30.

However mistakes by former management in entering the London loan market led to the bank having to take off its balance sheet a further $33 million from those profits, adding up to a total of $50 million in provisions for potential loan losses in London.

"It would be foolish to try to pretend otherwise,'' he said. " If I were asked to point to the biggest single mistake I would say that the strategy established in London was poor and some of the people hired to implement that strategy were not of the quality one expects, one demands from the Bank of Butterfield.'' Two weeks ago Mr. Johnston announced the bank was increasing its loan loss provisions for the London operations in addition to the $17 million already set aside in the financial year ended June 30, 1997. The company also allocated about another $3.1 million to exit its Singapore operation in 1997.

The company provisions for potential loan losses are connected with exiting a Slough-based subsidiary and a London branch which was closed last year. The bank has kept its London stockbroking operation.

Before Mr. Johnston took over in December 1997, the board of directors was led by chairman Sir David Gibbons. The bank acquired the London stockbroking operation in 1986 when Sir David was vice chairman.

He became chairman in 1987 when Canadian Scott McDonald joined the bank as its top executive. Under Mr. McDonald the bank began branch banking in London.

Michael Collier took over from Mr. McDonald in 1992, and by 1993 the London branch was reporting losses of between $700,000 to $1 million a year. Under Mr. Collier the bank bought a lending company.

Bank of Butterfield CEO slams previous management The bank set up its Singapore operation in 1996 and bought a financial services company in the UK. The bank brought in John Tugwell to fix the bank in 1997.

While Mr. Tugwell lasted only six months it was under his leadership that the bank took drastic action in exiting the money-losing London and Singapore operations and taking provisions against losses.

Mr. Tugwell, who left for personal reasons, also criticised the bank's management for past mistakes and cut 20 management positions locally.

Mr. Johnston also had some criticism about the way Mr. Tugwell went about cleaning up past mistakes, including not setting aside enough for potential loan losses.

"When my predecessor decided to close the London branch and to sell a trade finance subsidiary, also in London, he set himself an aggressive timetable,'' Mr. Johnston said. "In order to meet it, to get all the loans off the books and rebanked elsewhere, he had to provide guarantees to the banks taking the loans. Although many of these loans are performing at the other banks, it is proving more difficult than anticipated to get out from under our guarantees.'' He said the further reserves were insurance the bank had made adequate provisions in the event the loans didn't perform and for continuing liability with the subsidiary. Mr. Johnston also said he had decided to clean up everything on the balance sheet -- including remnants of past problems with reconciliations, the writing off of goodwill, and obsolete systems.

At the same time the bank decided to comply with a Canadian rule change ahead of time in the way employee pension plan medical benefits are accounted for.

The bank has set aside $30 million from retained earnings to account for the cost of estimated benefits employees will receive when they retire.

The bank, like many other companies in Bermuda, follows Canadian accounting standards. Other companies will be in a similar position see related story on Page 17 . Meanwhile Mr. Johnston emphasised the bank's strengths including an estimated 13.5 percent capital ratio, a strong balance sheet in which loans only made up 23 percent of assets, and strong fee-related revenues.

Over 200 banks have lines of credit in place for the Bank of Butterfield, and have $500 million in deposits. The deposits are used partly to fund an investment portfolio worth about $1.2 billion.

"Not one of these 200 banks has expressed to us the slightest concern about what we are doing,'' he said. "Indeed, several have congratulated us on doing what all banks should seek to do at all times -- strengthen the balance sheet.'' He also said the bank was considering raising funds through a ten year floating rate note.

"We are not thinking of raising capital because we need cash,'' Mr. Johnston said. "We have enormous amounts of liquidity. We could sell in a single day hundreds of millions of dollars worth of short term investments if ever we needed to. But we do not need to. We are considering raising capital in the way that most major banks in the world raise capital and for the same reason.

To better lever our shareholders' equity so that we can provide our shareholders with a better return on their equity than they have enjoyed in recent years.'' Accounting rule change: Page 17 ON THE OFFENSIVE -- Calum Johnston BUSINESS BUC