smile about Four months into his job as chief executive officer and president of the Bank of Bermuda Ltd., Henry Smith brims with the confidence of a man at the helm of a growing business.

He sympathises with his counterpart John Tugwell at the Bank of N.T.

Butterfield and Son Ltd. down the road from his head offices on Front Street, who has had to make difficult decisions in cutting and trimming operations to restore profit growth.

By contrast Mr. Smith, 48, was handed a bank that continues to expand its activities and profit. In the last financial year ended June 30, 1996, the bank racked up record earnings of $47.4 million, 12 percent above the previous year. Total client assets under management have grown to about $60 billion from $45 billion a year ago.

The bank also recently purchased Jersey-based investment house Le Masurier, James & Chinn Ltd. This month the bank announced the opening of a four-man office in Bahrain.

"We seem to be doing extremely well in virtually every jurisdiction in which we are operating,'' Mr. Smith told The Royal Gazette in his first in-depth interview with the Press. "Our consensus is to continue growing the business.

I would much rather work for an organisation that is growing than one that is shrinking.'' Because the big global players are getting bigger through mergers and acquisitions, competition for business has become more intense for the smaller banks.

"We can grow the business and we have got to grow the business or we are going to disappear,'' Mr. Smith says. "The worst thing in this world is to shrink your business. With the Bank of Butterfield, they have pieces that aren't working and they are doing the right thing by cutting them off. The pressure is very much on us to grow and to extend our influence so we can continue to compete. We have to be in all the places our clients need us to be.'' The bank has about 2,250 employees, of which 1,150 are in Bermuda. With the opening of the Bahrain office the bank now operates in 16 overseas locations.

The Bahrain office will allow the bank to expand service to its Middle Eastern clients both private and corporate.

"It's an area we have not paid a lot of attention to,'' he says. "We feel that our neutrality is attractive to clients there. There is growing interest in that part of the world for private trust services and certainly for custody services.'' He doesn't see the need for the bank to open offices anywhere else at the moment. He might consider looking at expansion in other places in Europe -- for example Switzerland. Continued growth could come through more acquisitions, mergers and joint ventures with other players in the market.

"The guts of the organisation is very sound,'' he says. "With some fine tuning we can do a lot to improve the profitability of the organisation. We are starting to see a little of that already.'' Sky's the limit for banker who relishes competition For now he is going to concentrate on restructuring his management team and the manner in which the bank operates. He has already divided the bank's operations into two streams of business. Luis Douglas will head the corporate client side of the business, which includes trust, mutual fund, and custody services.

"It is our most important business right now,'' Mr. Smith says. "His responsibilities will also include corporate banking which is an area we have not concentrated on as much as we should.'' John Hawkins will head the private client side, which includes the private trust, private banking business, and investment services. The bank is trying to grow the private banking business and will take a slightly different strategy in its investment services division.

Mr. Hawkins, who was previously executive vice president responsible for the Asia-Pacific region, will probably be based in Europe. Up to five of the executives will be based outside Bermuda, part of a strategy to spread the team in key locations around the world in recognition that the bank earns 50 percent of its revenues overseas.

"I believe we can achieve a better client focus and that's why we've arranged the bank along the lines of private client business and corporate client business. And I believe we can do a lot better on our cost than we do by predominantly using our (computer) systems more effectively and by not doing the same things over and over in different places. We are going to rationalise and consolidate like activities.'' The next layer of management will be made up of Peter Le Noury, in charge of information systems and operations, Barry Shailer, in charge of retail banking and administration. The third layer will be made up of ten senior vice presidents.

James Masters, who was executive vice president of asset management, resigned last October. Peter Mellor, who was head of the investments division, resigned in April.

"We want to take our investment business down a different road,'' Mr. Smith says. "We were trying to build a full fledged investment business in Bermuda.

It's doing fine, but we believe we might be able to do more for our clients by leveraging off relationships that we have with other money managers and investment managers.'' The investment division under Wayne Chapman, a Bermudian who was recently promoted into the position, will attempt to outsource some of its activities using multi-manager funds, funds of funds, outside advisors and money managers.

"We are going to reduce the scope of our own activity,'' Mr. Smith says.

"It's a slightly different approach than Peter (Mellor) was taking.'' Asked whether this reduction in activity will lead to cuts in staff he answers: "I don't know. I doubt it because we are a little thin on the ground right now. I know we are thin on the brokerage side. My guess is that we can take some of that pressure off people by spreading the load around a bit more.'' He has also created a group services unit, headed by Raymonde Dill, head of operations. The unit brings together "four key operations areas to achieve more consistency'' among the bank's activities. The bank has not identified the four divisions it has consolidated under the new unit. Eventually all other operating areas will be phased into the new division over the next two years.

Mr. Smith is also focusing on trying to keep staff from leaving the bank. He believes the Bermuda side of the operation suffers from a morale problem which led to quality staff leaving the bank for better pastures. The attrition rate has been high.

"I have been trying to attack the problem by communicating more with people and trying to get my management team to communicate more as well,'' he says.

"It's important to me that everybody in this organisation understands that they have an important role to play. If they don't, then they shouldn't be here. If we didn't need them then we shouldn't have hired them.'' He has been holding meetings with the younger staff, those with less than three years of service. He wants to find out what they think about the bank and get across to them he wants them to stay with the organisation.

He says his advantage is he is a Bermudian, and he has 24 years experience working his way through the bank.

"Having being raised in this organisation I know everybody who has been here five years or more and that's a huge advantage,'' he says. "I am also in a position as a Bermudian where I can be more candid with people. I can talk about issues that might be taboo with others and get away with it. I can talk about Bermudian and non-Bermudian issues. I can talk about race issues. I can talk about political issues.'' He wants to encourage Bermudians to stay with the bank, that is, the ones who are performers.

"I have been through what they are going through. I can tell young Bermudians that it takes a lot of work and you get a lot of frustration when you go through any organisation particularly a big one. There were times when I was very frustrated, and there were times when I felt I would leave the bank because I was so frustrated. I recognised that nobody else was going to solve those problems for me. I had to take my career in my own hands and I went to talk to people and I got answers to my questions. Thank God I stayed here.'' He believes morale has increased among the staff. Informal interviews with three employees by The Royal Gazette indicates his plan is working. Still there is a fear that his next step will be to start cutting staff. Mr. Smith doesn't leave out the possibility of cuts, but denies he has any such plans.

He points out that his management team has grown, not shrunk.

"It's more competitive out there and generally speaking over time this organisation and any organisation has to find ways to be more competitive,'' he says. "That means we have to find ways to do more for our clients and take a smaller margin and still make money. We have to find creative cost effective ways of doing things and we certainly cannot afford to carry people who are not productive, whether they are personally not productive or we just don't need them in a job that doesn't make sense. I don't like downsizing but if I felt we had to do it, I'd do it.

"We have put a real lid on staff growth and that's one of the reasons we have kept our costs down really well. Jobs have disappeared in some places and there have been new jobs coming on in some places. We have not had any real cuts or redundancies. There has been a natural attrition where people leave and we don't replace them and we have had a few early retirements. Fortunately for our staff we have had no need to make any real cuts across the board. But I always leave the possibility open because we have to make money.

"The top management team is getting better. I don't want to make all the decisions. I can't. I want to see as many decisions as possible made at the point of the customer...I am really trying hard to push the decision making and the responsibility for running the business out to others in the organisation and that means well outside the executive team.'' He believes the bank's record in terms of keeping and promoting black employees has not been stellar.

"I am disappointed that we have not made better progress in terms of more black Bermudians in senior management, but it is not for lack of trying,'' he says. "We have some very good people at the next layer down, but we have also lost some very good people that have left, black and white. I don't want to keep losing good people. I want to keep good people, white, black, Bermudian, non-Bermudian, but I am a little concerned about black Bermudians' prospects in this organisation. I want people to believe they have ample opportunity to get ahead, black or white. The trick is to make that happen, to attract the right people and encourage them to reach the top.'' Another concern being addressed by the bank is the low price of its shares on the Bermuda Stock Exchange. The bank recently adopted a poison pill remedy as a first step to improving value for the shareholders, 80 percent of whom are Bermudians. Another step is to consider a secondary listing on an overseas stock market, probably in the US.

"We were trading below book value in a world of bull markets,'' Mr. Smith says. "This is frightening because somebody may come along and pick up a very big chunk of this organisation at a real bargain and maybe it's somebody we don't want to be in an ownership position. We did it to ward off any unwanted suitors, or at least make them pay the right price.'' The bank shares have had a remarkable run up since May, gaining $8 to close at $25.50 yesterday. Mr. Smith says the secondary listing will give the bank the option of raising additional capital for further future growth, money which could not be raised in Bermuda alone.

"We have to find a way to compete and grow on a global business,'' he says.

"...It is very difficult to continue viewing this organisation as a local business. I don't have an immediate need for additional capital but long term we may need to have access to capital for future growth and I'm not sure how much of that is going to be available in this little marketplace. We recognise the small size of this market limits the price of our shares. If necessary to raise capital we might need to go outside Bermuda to do that.'' He believes Bermuda over the long term will eventually have to open up its marketplace to foreign banking competition. Only the best companies must be allowed in to protect the Island's reputation. Bermuda will also have to consider amending its rule requiring local companies to be 60 percent owned by Bermudians.

"There are serious issues involved in a secondary listing, including Bermuda's 6 0/40 ownership rules,'' he said. "I don't want a two tier share structure, with no liquidity here and liquidity outside. It is paramount we protect the interests of our current shareholders. Bermuda has some thinking to do abo t how open this market is going to be or not going to be.

"Can we afford not to open up this market? I'm not sure we can. The pressure is very much on us as a jurisdiction to play much more on the world stage, to be more open, to adopt global standards and play by global rules. I am not afraid of competition. Competition drives you to do better. I'm concerned about its effect on the Island.'' He is calling for more public discussion on the issue so Bermuda can develop a strategic plan on how to open its marketplace. He believes the 6 0/40 rule can be relaxed selectively by allowing more foreign owners of only a few companies which compete on a global basis, like the banks.

Mr. Smith graduated from Trinity College in Hartford, Connecticut in 1972 with a Bachelor of Arts degree in psychology. He joined the bank the next year as a management trainee. He held various posts in banking, in the international department, in commercial credits and collections, and in treasury, before being appointed senior vice president and general manager of retail banking in 1990. In 1994 he was based in London, responsible for Europe, Middle East and Africa. The bank announced his appointment as president and chief executive officer last year.

CONFIDENT -- Bank of Bermuda president Henry Smith has expansive plans.