Clarien Bank bosses have apologised to customers and staff for the “doubt and confusion” of a 15-month period of upheaval.

Their comments come two weeks after the announcement that the Gibbons family — through its investment company Edmund Gibbons Ltd (EGL) — had retaken 100 per cent ownership of Clarien, just 15 months after selling an 80 per cent stake to CWH Ltd.

James Gibbons, a director of both EGL and Clarien, said the partnership with CWH “did not work out as planned”, and that the Gibbons family had felt that buying back complete control was “the right thing to do”.

In an interview with The Royal Gazette, Mr Gibbons and Clarien chief executive officer Ian Truran said the bank was “in active discussions with a number of parties” as it looked for a strategic partner to help to bolster its capital base to meet tougher regulatory requirements and also to expand its business lines.

Clarien was the new name given to the former Capital G Bank after CWH took control in January 2014. In the tumultuous period since then, a number of senior managers have come and gone. The most prominent of those was Zoran Fotak, a founder of CWH who became co-CEO of Clarien at the time of the takeover but left the role in October.

Mr Truran said the bank was working on “rebuilding staff morale” and recognising the efforts of employees.

Mr Gibbons said: “As EGL, we owe people — our staff, our customers and the public in general — an apology in that we have sowed doubt and confusion, though unintentionally.

“The family made a decision to come back to do the right thing and make sure the institution continues on a proper footing. We will be much clearer with future moves, so people understand us better.”

He added that he could not comment on the internal challenges encountered by the bank over the past 15 months because of confidentiality agreements. “It is a contractual undertaking that the terms of the share repurchase are not disclosed,” he added. Mr Truran also conceded the bank could have done things better. “There have been some lessons learned,” the CEO said. “We recognise that some of the decisions made were impactful to both our clients and our staff. We have done our best to make sure where we can that we have adjusted.”

Mr Gibbons said the response from staff and customers of EGL’s return to full ownership has been “super positive”. Nonetheless, some had expressed bewilderment at the U-turn.

“Some have said ‘that’s bizarre, it’s from fiction’, while others say they regard it as good news but ‘I really need some more information’,” Mr Gibbons said. “That’s where we hit the sand, when we get back to that contractual gag.”

Mr Gibbons said the stricter rules in the pipeline for banks under Basel III were at the root of why the bank had partnered with CWH in the first place and why it was now seeking another strategic partner.

Basel III is a new international standard for banking regulation, designed to reduce the risk of bank failure, that has been adopted by Bermuda’s financial regulator, the Bermuda Monetary Authority. Banks will start reporting under Basel III this year, while the implementation of its capital requirements will be phased over three years from 2016.

Under the new rules, Clarien is categorised as of ‘systemic’ importance, because it is home to a quarter of the Island’s Bermuda dollar deposits, Mr Gibbons said. That requires it to adhere to the strictest standards.

“The conclusion was that we had to expand our capital base, even with the same community bank model,” Mr Gibbons said. “We needed to run a model with 30 per cent more capital, just because Basel III came along.”

Growing the capital base would not only meet a regulatory requirement, but also fuel the bank’s growth in areas in which it has been a minor player so far, specifically corporate banking, for international and local business, as well as the expansion of its international wealth management business, he added.

“We looked for partners to do that and found CWH, but over the last 15 months that did not work out as planned,” Mr Gibbons said.

“As a result — and as opposed to saying ‘this is not our problem any more, we’re a minority shareholder’ — the family felt that we needed to do the right thing, which was to work to effect what we started out to do.

“As a result we negotiated with the CWH shareholders and repurchased the shares.”

Bermuda’s adoption of the new rules will impact the profitability of the Island’s banks as it will require them to hold more low-risk, low-return liquid assets. In turn, banks will be reconsidering their business models to deal with the resulting loss of revenue, Mr Truran said.

“Do we choose to shrink the organisation — and therefore have fewer risk-weighted assets [such as loans] on the balance sheet — or alternatively do we try to expand the revenue base into areas that don’t so heavily require capital?” Mr Truran said.

“We are a community bank, so we will continue to lend to the community, and so will continue to consume capital. However, we have a strategy to grow our fee-based income, or non-capital intensive businesses, such as wealth management.”

Mr Gibbons said there were no plans to change the Clarien name, though he accepted that there was work to do for the public to understand what the brand entailed.

A change back to the Capital G brand, or another name, would involve spending hundreds of thousands of dollars on new signage, letterheads and digital rebranding. “Secondly we have to walk and talk about who we are and what we mean and I don’t think there’s great clarity on that,” Mr Gibbons added.

“From a business philosophical perspective, we will continue to do what we did when we were previously fully owned by EGL. We will do that under the Clarien brand, because if we switch it back, it could perhaps cause more confusion.”

Finance Minister Bob Richards has criticised banks in his past two Budget statements for failing to lend enough in a struggling economy, while also laying off Bermudian staff.

Mr Truran said Clarien had 197 employees as of the end of March — for the past four years the figure had consistently been at around that level, he added.

Mr Gibbons said: “The institution is dynamic. Where we have let people go in x area, there is hiring in y area. When you perpetuate employment of people where a job doesn’t exist any more, all you do is kick the can down the road and it becomes a bigger problem later.

“The important thing is to grow so that the aggregate employment increases.”

He added that Clarien would love to lend more, but in a recessionary environment there were fewer requests for loans.

“Secondly the underlying economic fundamentals are challenging — collateral values are flat to down and where there is less economic activity, it’s harder to underwrite loans.

“Banks must lend in order for an economy to be healthy — there is no question about that. But the bank’s first job is to pay the depositor back. At least 80 cents of every dollar that is loaned out by this bank is other people’s money. So we have to think about the depositor.”

As the CEO of a bank, Mr Truran has a good overview of the economy. His optimism is tempered somewhat by the consolidation in the insurance industry, since mergers are leading to job losses, with knock-on effects likely to come in the wider economy and the rental market in particular.

“There are green shoots, but no saplings yet,” Mr Truran said. “Until such time as the employment rate improves, it will continue to be green shoots.

“I believe we’ve just gone from positive sentiment stage into real activity, but that has not translated into improvements in employment at this stage.”