Butterfield Bank yesterday announced a first-quarter loss of $176.3 million — largely as a result of offloading most of the troubled assets that plunged the bank into turmoil over the past two years.

Chief Executive Officer Brad Kopp said that the bank had sold off $820.1 million of asset-backed securities at a realised loss of $113.8 million, as the bank took a dose of pain to derisk its balance sheet.

Also contributing to the loss was a $60.5 million write-down on the bank's holdings of Structured Investment Vehicles — sophisticated financial products that plunged in value during the credit crisis.

The loss was not a surprise to the market, as Butterfield had announced last month that it anticipated investment losses of up to $175 million in the first quarter through the balance sheet derisking.

Many of the asset-backed securities were linked to US mortgages and lost value during the property slump, triggering hundreds of millions of dollars of write-downs over the past two years.

A group of mainly overseas investors last month pumped $550 million into the bank in exchange for new equity, which gave the bank the extra capital it needed to be able to sell off the problematic investments.

The profitability of the bank's operations was also squeezed by interest rates remaining at historically low levels during the first three months of the year. "This positions the bank well to return to profitability when interest rates start to rebound and we now have a very clean balance sheet," Mr. Kopp told The Royal Gazette last night.

In the bank's earnings statement, Mr. Kopp said: "We have largely diminished the balance sheet exposure to potentially problematic securities, allowing us to focus our resources on returning our businesses to a state of healthy growth."

Asked what problematic securities remained, Mr. Kopp said the newly written-down SIVs had a carrying value of about $135 million.

"That does not mean that the risk has all gone, but they are three percent of our investment portfolio and one percent of our assets," Mr. Kopp said.

The new capital from investors including the Canadian Imperial Bank of Commerce and private equity giant the Carlyle Group has helped to boost the bank's tier one capital — a key measure used by regulators to assess a bank's financial strength — to a record high of 14.3 percent as of the end of March.

As part of the deal with the new investors, legacy shareholders received rights to purchase up to $130 million of the new equity at $1.21 per share, the same price paid by the newcomers. The rights offering began on April 12 and will continue through May 11.

Mr. Kopp said he was "extremely pleased" with the level of interest the public had shown at a series of rights offering investor meetings staged by the bank. The tone of the meetings had been positive, he added.

Millions of rights have been sold on the Bermuda Stock Exchange — yesterday they were trading at seven cents apiece. The volume indicates a high level of interest in the offering.

"We are pleased that we're able to give our loyal shareholders, many of whom have experienced a substantial decrease in the value of their investments in the bank over the past two years, the opportunity to participate in the future growth of the bank," Mr. Kopp said. The bank operates in nine jurisdictions and its Bermuda operation is the biggest. The earnings statement showed the number of people employed by Butterfield on the Island fell by 48 over the past 12 months to 749.

"Essentially, that was by attrition," Mr. Kopp said. "Obviously we are concerned about our expenses all the time, but we have no lay-offs planned. Our investors did not come in to shrink the bank." Mr. Kopp hopes to see the bank build up its banking, trust and investment businesses and is confident that it will do so.

Net interest income, before credit provisions, fell by 13 percent over the prior year period to $42.8 million, while non-interest income remained almost unchanged at $40.5 million.

Michael Collins, senior executive vice-president in charge of the bank's Bermuda operations, said: "Unfortunately, over the past couple of years, our revenues have been suppressed as a consequence of both low interest rates and low asset values on the world's financial markets. In Q1, net interest income was down by more than $6 million for the quarter on interest rates that continue to be at historic lows in Bermuda, the US and UK."