Uncertainty stemming from the Independence debate will continue to cloud the real value of the Bermuda Stock Exchange's two biggest constituents, according to First Bermuda Securities Ltd. (FBS).

"While we expect the referendum on Independence to cloud the market's performance over the next few months, we do believe that Bank of Bermuda and Bank of Butterfield stocks warrant a look on a strictly fundamental basis,'' said FBS in a recent update to clients.

While pundits claim Independence has led to investor uncertainty and a sellers market, FBS, concentrating on the real value of the two lending institutions, recently recommended its clients buy Bank of Bermuda and Bank of Butterfield stock, said Mr. Maxwell Roberts, vice president of FBS.

"It is the (recent) essence of the marketplace a willing seller and a willing buyer.'' Investment measurements show the Bank of Bermuda and Bank of Butterfield are at their highest value in over three years, FBS said.

"The banks' price earning ratios, price to book value ratio and dividend yields represent the best value since the bank's first started to recover from the recession in early 1992.'' Two weeks ago, FBS updated a previous "buy'' Bank of Butterfield recommendation to "strong buy'' when the stock dropped to $10.625.

On April 5, FBS recommended its clients "hold'' Bank of Bermuda when it traded at $19.125 then updated that recommendation to "buy'' when the stock dropped to $17.125 in mid-May.

Since FBS's May 15 update, the index has climbed over 60 points while banks' stocks have traded up.

Bank of Bermuda and Bank of Butterfield yesterday traded at $19.25 and $11.50 respectively.

Mr. Maxwell said he believes the Bank of Butterfield's six month reporting period, January 1 to June 30, will show even stronger earnings and its stock is still trading at a bargain price.

"The Bank of Butterfield has invested heavily in new computer systems as part of its home office domestic banking system to provide improved and extended customer services. Part of this involves implementing new point-of-sale packages making use of electronic data capture technology. We expect this investment to contribute significantly to future revenue streams,'' said FBS.

But the company said the future the bank's performance could be negatively impacted by the independence debate.

"There is a modicum of political risk as a result of the pending referendum on independence,'' FBS said.

"Although Moody's reported the view that independence would have no material impact on the economy, any uncertainty or loss of confidence in Bermuda caused by either the decision to move toward independence of the handling of the issue could persuade the bank's international clients to reassess their relationship.'' FBS is currently working on a similar review of Belco and Telco.