Bermuda's investors should maintain their confidence in the Island's banking sector despite the fallout from the US House of Representatives' decision to reject a $700 billion bailout plan for the financial industry.

That is the message from Joel Schaefer, president and CEO of Capital G Investments Ltd., who said that Bermuda's banks are well capitalised and do not share the same risks their counterparts in the US and Europe are exposed to and the markets will recover in time.

On Monday US lawmakers threw out the bailout plan in a surprise vote that sent shockwaves throughout the global markets, with European authorities scrambling to prop up a slew of banks.

Mr. Schaefer gave a presentation along with Keith Wade, chief economist of Schroders in London, at Capital G's Global Economic Forecast Seminar held at the Elbow Beach hotel last night.

He talked about the importance of asset allocation and explained the reasons behind the current US economic crisis and its impact on Bermuda.

"I am really looking at it from an investor's point of view in these types of markets and the fact that you really need a plan," he said.

"The focus is on asset allocation — that is the single most important decision that you have to make.

"We have been here in this situation before where we had these types of declines before — the subsequent year was positive, which goes to show that you really cannot determine the timing of the markets."

Mr. Wade addressed the matter of the plan put forward by US Treasury Secretary Henry Paulson and the demand and supply side of the crisis, including banks' willingness to lend and consumers getting their confidence back in the economy amid the recent jobs cuts, fall in house values and increasing burden of mortgages.

He highlighted the fact that there had been 42 banking crises worldwide since 1970, 30 of which were resolved by governments pumping in money to support the banking industry, as a sign of hope for the future.

Mr. Schaefer said there had been a loss of confidence in the markets, pointing to events on Monday as a fear factor resulting in a vote of no confidence in the US legislature.

But he also saw it as an opportunity for the average person on 'Main Street' to understand how the financial markets work and what the financial package has to offer and learn how it applies to their everyday life, such as credit card limits on grocery shopping.

Mr. Schaefer moved to reassure customers that the Island's banking sector is in good shape compared to its US and European equivalents, with a sound capitalisation allied to a solid mortgage book.

"Bermuda's banks are all well capitalised," he said.

"They do not share these types of risks that we are hearing of from the US and European banks.

"There is no concern about the structure and capacity of the bank because our capital requirements are higher and we have not been exposed to the types of instruments to the same degree in that we do not have the same fancy mortgage products they have.

"Most of the mortgages in all the banks in Bermuda will be a level below the value of the house, so there is protection in the collateral there, and we have not seen a 20 percent fall in the price of houses in Bermuda either."

Equally, he believes Bermuda's banks do not face the same issues as those in the US over the safety of deposits.

"We do not have the same deposit or protection issues as you do in the US and accordingly we have had higher capital requirements and banks' balance sheets are a matter of public record and they are all in sound condition," he said.

"We have not seen any kind of rush on deposits or any sort of concern on our depository position."

Mr. Schaefer urged investors that there was no sense in panicking in the current financial climate and instead to wait for the markets to turn around. He said that now might be a good time to make an investment when the markets are down, but to, above all, make sure they have a plan in place if they have already invested money.

He admitted it was hard to look ahead in the current market conditions, while a lot of it depended on what happens with the financial rescue package and whether it gets the green light, followed by the trickle down effect it has on Bermuda.

"If the plan does not come to fruition, investors are going to see what impact this is going to have on earnings," he said.

"The plan may come through and there may be a softening of earnings, but not a hardcore decline.

"If it does not come through, then there will be an impact on earnings.

"Among the impacts it could have is the fact that you might not take a vacation to Bermuda if you are concerned about what your bonus is going to be this year.

"The financial sector is looking at reducing costs and retaining earnings levels with the challenge to income — Bermuda is not immune to what is going on."