Bank of Bermuda Ltd. chairman Eldon Trimingham yesterday warned shareholders that problems in the world's financial markets were affecting the company's bottom line.

"A significant portion of the Bank of Bermuda group's income is derived from administration fees that are based on the total net asset values of investments under our administration,'' he told shareholders the company's annual general meeting. "Given that many of these funds have traded lower in recent months, our fee income stream has also come under pressure.'' He said improved interest earnings and expense control have compensated for reduced fee income. Total projected earnings for the current financial year remain on target.

"We will nevertheless continue to monitor markets and their impact on the bank's operating results,'' he said.

According to the bank's annual report fee income of $204.2 million for the financial year ended June 30 was 66 percent of total revenue. Fee income increased by 12.8 percent over the prior year.

"The key factors driving this growth included an increased level of business from both existing and new clients, particularly in the expanding European offices, as well as excellent foreign exchange earnings as the bank benefited from higher volumes and wider spreads during periods of market volatility,'' the annual report stated.

Of the fee income corporate trust services provided 47 percent, or $95.4 million, of the $204.2 million in revenue. Foreign exchange earned $33.2 million, or 16 percent of total fee income. Investments earned $29.6 million, private trust $27.7 million, and banking and other income $18.3 million.

Foreign exchange revenue increased 36 percent over the prior year while investment income increased 27 percent.

The bank had a total revenue of $310.9 million in the financial year ended June 30, an increase of 16 percent over the previous year. Interest income of about $100 million made up about 32 percent of the revenue.

As previously reported in The Royal Gazette the bank had record profits of $61.2 million for the year ended June 30, a 26 percent increase over the previous year. The 1998 financial year marked the sixth consecutive year of record profits.

As at June 30 the bank had net assets of $10.1 billion and assets under administration of $65 billion.

Elsewhere the annual report stated the bank's had reorganised into three "client'' divisions -- corporate, private and retail. The bank's treasury and investment operations provide support for the divisions. Treasury and investment operation were also consolidated from regional into global operations.

Group operating expenses were $241.5 million compared with $211.7 million in 1997, an increase of 14 percent.

"The increase was driven substantially by additional personnel costs incurred to meet very strong growth in all our business lines,'' the bank stated.

The bank has budgeted about $3 million for Year 2000 expenses. As at June 30 directors and executive officers held a combined interest in 1,075,890 of common shares and 56,207 of the Bank's warrants. The holdings in common shares represent a combined ownership of about 5.3 percent of the bank's shares.

In his speech yesterday Mr. Trimingham repeated the bank's commitment to getting a secondary listing on the Nasdaq stock exchange. The bank expects to complete Securities and Exchange Commission and Nasdaq filings by the end of the year.

The bank is seeking formal exemption from the Island rules restricting foreign ownership to a maximum of 40 percent in local companies.

The bank has offices or subsidiaries in the British Virgin Islands, the Cayman Islands, Cook Islands, Dublin, Guernsey, Hong Kong, Isle of Man, Jersey, Luxembourg, Mauritius, New York, New Zealand, Singapore, and Samoa. It has representative offices in Bahrain and London.

Eldon Trimingham