Butterfield Bank's share price is trading well above its "normalised value", according to one analyst.

Nathan Kowalski, of Anchor Investment Management, a chartered financial analyst, estimates the normalised value of a Butterfield common share at between $1.34 and $1.67. Yesterday the bank's share price closed at $1.95 in Bermuda Stock Exchange trading.

Mr. Kowalski's analysis follows a $550 million investment in new Butterfield equity by a group of mainly overseas investors, led by the Carlyle Group and the Canadian Imperial Bank of Commerce.

The bank, which made a net loss of $213 million in 2009, is also making a rights offering, giving its shareholders the chance to buy shares at $1.21 apiece.

Mr. Kowalski's analysis was aimed at calculating the earnings the bank might be able to make in a "normal" year, and from that working towards establishing a "normalised" share price range.

The analyst said he had been "generous" in his calculations of the bank's ability to cut costs.

"It's trading a little high at these levels," Mr. Kowalski said, referring to yesterday's $1.95 share price. "According to my model, $1.67 would be at the higher end."

Mr. Kowalski added in a best-case scenario — with everything panning out perfectly for the bank — then the normalised value could be as high as $2.

He added that the share price was likely to fall with next month's $130 million rights issue, as typically a share drifts down towards the rights price, which is $1.21.

In his analysis, Mr. Kowalski shows the dilutive impact of the new investment. The share count at the end of 2009 was just over 99 million. With the new equity issued in the recapitalisation included, the share count rockets more than fivefold to 553.6 million.

"It puts the bank in much better shape from a balance sheet and capitalisation standpoint, but it is extremely dilutive," Mr. Kowalski said.

The estimated normalised share price is based on the bank achieving a significant cut in expenses and trading at a multiple of between 9.8 and 12 times earnings.

In his analysis, Mr. Kowalski highlights the importance for the bank of trimming its expenses to lowering its efficiency ratio.

"One of the more obvious issues that the bank has is that it is run very inefficiently compared with other North American and European banks," Mr. Kowalski wrote.

"The average efficiency ratio has been about 70 percent since 1991 while other banks run ratios in the low 60 percent or high 50 percent range."

In his calculations, Mr. Kowalski estimates the bank will revert its long-term historic efficiency ratio of 70 percent.

"It should be noted that this amounts to $57 million lower run-rate than the current expense," Mr. Kowalski wrote.

"If the bank does not restructure by lowering expenses dramatically, its profitability will continue to suffer and it will not generate earnings as modelled."