at offering services, like insurance products, they have not traditionally offered, says Bank of Butterfield president and chief executive officer John Tugwell.

"Traditional banking has had it if it tries to stand alone in the next three or four years,'' he told a meeting of the Bermuda Society of Financial Analysts.

In one his first public speeches in the six weeks since he took over the bank's top post, Mr. Tugwell revealed some of the ways in which he thought Butterfield would be able to grow internationally and locally.

He believes profit growth for the Bank of Butterfield will have to come through joint partnerships or acquisitions, and through cutting costs.

Increasingly, he said commercial banks are facing intense competition in some of their core areas from companies not traditionally in the banking business.

For example in the US, General Electric was able to use Mr. Tugwell's purchase of one of its fridges as a means of trying to sell him a mortgage.

Banks may have to merge with insurers "I bought the fridge from a GE supplier,'' he said. "About three months later I received a letter from GE offering to lift my mortgage on my house.

They knew exactly the amount of my mortgage and exactly what rate to offer me.

They quoted me a rate just below market and just below the price I was paying.

It was a wonderful piece of marketing based on me buying a fridge from one of their suppliers.'' With this kind of competition, banks are taking the strategy of consolidating their revenue streams and cutting costs by merging with other players in the market. Trying to expand the business using internal resources has become too difficult in the current marketplace.

National Westminster Bank Plc, for example, went from being the top bank in UK to about the fifth or sixth in market share by taking the wrong strategy. It tried to grow by developing a global investment business instead of concentrating on increasing revenue by pushing more product to its customers.

Mr. Tugwell was a director of the bank, and was president and chief executive officer of its New York-based subsidiary National Westminster Bankcorp. Inc., which was eventually sold to Fleet Bank NA.

"What it probably should have tried to do was concentrate on its core businesses and get into insurance brokering or try to buy a building society, which is really residential mortgages, and use its massive consumer customer base of four million clients to expand the range of products so it could sell more stuff through the branches,'' he said. "It didn't do that and it got itself into strategic trouble.'' By contrast National Westminster Bankcorp. in the US went from being worth $500 million to being sold to Fleet for about $3.7 billion three years later.

"I really did it by taking cost out and by buying banks, really merging the businesses and getting more volume through,'' he said. "In the US you are going to see more mega-mergers as the banks get together. They see revenue growth as intensely difficult. Too many new entrants are coming in and creaming off the good business. The good loans are gone. The credit card business is very attractive. small business business is going elsewhere.'' One way of cutting costs is by moving more toward electronic banking. About 70 percent of all banking transactions in the US are being processed electronically. Customers there are being penalised if they decide not to use cash machines or telephone services to do ordinary transactions. At the Bank of Butterfield only 30 percent of transactions are being done electronically.

"Maybe that will have to become more widespread here,'' Mr. Tugwell said.

"To cash a cheque is costly. It's much easier to cash a cheque thorough electronic delivery if in fact you're not looking to sell something else to customer at that time.'' Attempting to increase Butterfield's market share compared to the Bank of Bermuda has limited possibilities for profit growth, he said.

"I have always prayed to have a bank that had 50 percent market share,'' he said. "It has been an ambition. The problem is that there is another bank that has 50 percent market share. That's a conundrum on the island. To get it from 50 to 60 is sort of immaterial. It doesn't increase the profit much. It may increase loss if there is a loss. The market is stagnant. There are very limited possibilities for organic growth in the market. What you have to do is really be super in introducing a wider range of product in the retail banking market. And you have to find ways of stopping customer attrition and try and sell them four, five or six products. That will be the key to improve profitability in what is really an oligopoly of two.'' One means of increasing revenue volume locally is by offering new products, such as insurance, to the bank's customers.

"We have got to look at the possibility of pairing with the insurance industry,'' he said. "We in the banking industry have got to seriously look at the possibilities afforded to us by really getting together. I've got to think it through. It makes a lot of sense. We are both trying to sell each other's products at the present time.'' He also believes the expansion of the international business sector will help drive revenue growth. However, attracting more business to the Island can only be achieved if regulations don't get too burdensome, and the rule limiting foreign ownership to 40 percent is relaxed, he said.

"We need to be careful that we don't get frightened of competition,'' he said. "We have to encourage in Bermuda the ability to attract more foreign business. We are not going to do that with artificial barriers which control ownership and competition.'' Overseas, Butterfield has missed out on developing an attractive package of products to market. Butterfield, unlike the Bank of Bermuda which recently opened a Bahrain office, cannot think at this time of opening up in new overseas locations. What it will eventually have to turn its attention to is probably a joint venture with another international player.

"I'm not going to open too many organic offices overseas,'' Mr. Tugwell said.

"We are a different bank to the Bank of Bermuda. What we have not done at Butterfield is develop a global product range over the past four of five years when it would have been sensibler and easier to do when there were still market windows there. I would not have the nerve to open an office in Bahrain.

"I'm sure it will work for the Bank of Bermuda because they have the product range and the custody capability. One gets a sense that's a better bet for them then it would be for Butterfield. How Butterfield has got to develop its global business is to concentrate primarily delivery in Bermuda and the Cayman (Islands). There is good business in Cayman. We have got to explore the joint venture route in the international sense.'' Mr. Tugwell said he is not working on such an arrangement at the present time but is concentrating more on increasing the bank's product range to get more revenue.

The Bermuda Society of Financial Analysts has appointed David Ware as its current president, Lori Blackwood as vice president, Eva Korpela as treasurer, and Cameron Renaud as secretary. Roger Harrison, Sean Kelly, Garry Musy, Robin Masters and Robert Tilden are also on the board of governors for the 1997/98 year.