indications show.

Chairman Sir David Gibbons has told shareholders by letter this month that "measures are being taken to improve financial performance in the remainder of our financial year, which ends on June 30, 1997.'' The news comes as the bank's half year report, including unaudited financial statements for the six months to December 31 are being prepared. The board of directors has declared a dividend of 12.5 cents a share for the second quarter ending December 31.

The anticipated earnings setback comes after the bank last month lost the services of president and CEO Michael Collier to illness. The board has appointed a search committee to make recommendations on Mr. Collier's successor.

Sir David said that third quarter figures for the calendar year 1996 continues to shine a spotlight on hospitality and retail industries.

Expenditure by air arrivals was marginally up by one percent and spending by cruise ship passengers rose 12.8 percent. Retail sales rose 2.1 percent, while inflation held steady at 2.4 percent.

Overseas purchases by Bermudians was up 2.3 percent, while healthy gains were seen in the incorporation of local and international companies.

But Sir David said that global economic growth has been disappointing in 1996, compared to earlier expectations, after sub-par performances from continental Europe and Japan.

He said, "A slowing of the US economy has developed over the past quarter despite earlier fears that some capacity restraints were in evidence with a measure of upward wage pressures and low unemployment levels.

"The financial markets have benefited, however, as foreign interest rates remained low and overseas investors have bought US financial assets ($335 billion for the first nine months of 1996 compared with $227 billion for the same period in 1995) given the steadier value of the US dollar on foreign exchange markets and attractive relative returns in equity and fixed-income markets.'' The annual growth rate of US real GDP for the third quarter was 2.1 percent and the authorities, said Sir David, will be watching reports on consumer activity carefully over the holiday season as a future barometer of the US economy.

He said, "This is of particular relevance to us in Bermuda and preliminary reports of US retail spending are encouraging with personal income remaining healthy. But the key is to what extent consumers will continue to commit their increased income to spending.'' High consumer confidence, partly as a result of buoyant financial markets, contrast slowing housing and auto sectors.

The bank chairman said, "It seems clear to us that US monetary policy is likely to be on hold until the February Federal Open Market Committee meeting so the outlook for US interest rates looks benign for now.

"Nevertheless, the Chairman of the Federal Reserve has referred to the "irrational exuberance'' of investors in a speech to the American Enterprise Institute, which was clearly aimed at producing a measure of caution in the behaviour of US equity investors.'' Inflation statistics have been comforting to the financial markets, he said, both in the US and other major economies. The notable exception is the UK.

Continental European growth is hampered by fiscal restraint relating to the political and economic quest for European Monetary Union, scheduled for 1999.

Sir David Gibbons