Butterfield Bank's share price yesterday surged 33 percent, helping to push The Royal Gazette/BSX Index up by 11.5 percent.

By early yesterday afternoon, Butterfield's common shares were trading at $2, up from Monday's closing price of $1.50.

Those who participated in the bank's recent rights issue and bought shares at $1.21, have now seen the value of those shares rise by 65 percent.

Investment adviser Jeremy Dyck of LOM Securities (Bahamas) Ltd., who follows Butterfield, said he believed the surge may have been sparked by institutional buying.

"There has been no substantive news to come out since the announcement of the oversubscription of the rights issue, which was itself a good sign," Mr. Dyck said yesterday.

"I would speculate that there may be some institutional buying coming in, some people willing to pay up to $2."

Trading by large institutions, which hold blocks of shares in publicly listed Bermuda companies, occasionally had a dramatic effect on local share prices, he added. He believed this was probably the case with insurer BF&M Ltd., which last week gained 18 percent, after falling 8.3 percent the week before.

Butterfield has stopped paying out dividends to shareholders and was unlikely to resume for at least two to three years, Mr. Dyck said.

LOM had advised their clients to exercise their options in the $130 million rights issue that concluded earlier this month. Mr. Dyck said the stock would likely be very volatile for some time.

"I would not be surprised if it traded at $1.50 tomorrow after being at $2 today," Mr. Dyck said.

"It's very hard to put a value on what the stock is worth until we see normalised earnings again. It's still a very difficult operating environment for banks like Butterfield, with interest rates being so low."

Once the US Federal Reserve starts to raise rates, the profitability of Bermuda's banks should increase, he said.

BSX chief executive officer Greg Wojciechowski said the bank's shares made up a large percentage of the Index. Hence a large movement in the bank's share price would be reflected by the Index.

Butterfield's rights issue came after a group of mainly foreign investors, led by the Carlyle Group and the Canadian Imperial Bank of Commerce, invested $550 million in new Butterfield equity in a deal that was announced in March.

This followed two years of struggle for the bank, which had written down the value of investments tied to US residential mortgages by hundreds of millions of dollars.