officer John Tugwell outlined the bank's tough strategy in getting operations back on track to producing better returns.

His theme during the ten-page report is on increasing efficiency and return on capital and expanding operations in core areas.

In particular he says the bank will now focus on its high-producing core operations of treasury and asset management in Bermuda, and on overseas operations in Grand Cayman and Guernsey.

"Together they give us the basic building blocks for growth, that is, a solid client base and liquidity position,'' he stated in the company's annual report.

Growth over the next five years will come from the development its global business rather than a "limited local, retail base,'' Mr. Tugwell stated.

The Bermuda treasury business, which accounted for about 12 percent of the bank's income in the fiscal year ended June 30, has "consistently met its targets and budgets over the past five years and achieved a return on capital (ROC) of 20 percent in 1996-97, with consistent improvement expected,'' Mr.

Tugwell reported.

The bank will attempt to gain new clients and improve margins through introducing new investment products in the treasury division, he stated.

The asset management division, which earned 16 percent of the bank's revenues in the previous financial year, had a return on capital of 33 percent.

"Growth potential will be realised as we focus on client relationship management, cross-selling and new product introductions,'' Mr. Tugwell stated.

"Accordingly, we plan to invest in improving our private banking function in 1998, truly establishing a comprehensive unit through which we will be able to offer seamless service to high-net worth clients.'' As reported earlier, the bank made a profit of $10.4 million for the financial year 1997, a decline of 64 percent from the previous year after a $20.6 million charge was taken for operations Mr. Tugwell discontinued in Singapore and London.

The bank's Grand Cayman operation contributed 17 percent, or $24.2 million, to the bank's total income. This represented a return on capital of 40.1 percent.

The operation had a 38 percent increase in total assets to $825.8 million.

"It is a model for best practices to be adopted by our other operations,'' Mr. Tugwell stated. The operation has a staff of 162. The bank plans to expand operations by marketing itself as an asset manager in South America through the Grand Cayman office. Guernsey's 60-person operation contributed five percent of total income and a return on capital of about 18 percent. The bank plans to expand its presence there when the "right strategic opportunity arises''.

In Hong Kong, where the bank's operation had a loss of $700,000, there is "work to be done'' Mr. Tugwell stated. There the bank has made a decision to concentrate on third-party fund administration and trust business.

Mr. Tugwell then casts his scrutiny on the Bermuda retail operation where he finds much to criticise. While acknowledging the bank's commitment to providing services to Bermuda residents, it contributed only 34 percent to total income and only $216,000 in profit on a income base of $48.2 million.

"We must lower our cost base in Bermuda,'' he stated.