Carlyle, along with several other investors, led the recapitalization of the Bank of N.T. Butterfield & Son Limited. The new equity capital, which allowed the bank to remain independent, was part of a comprehensive plan to increase equity capital and de-risk Butterfield’s balance sheet. In addition, the new capital provided flexibility to restructure Butterfield’s investment portfolio, provision for non-performing loans, decrease earnings volatility, and maintain capital ratios well in excess of regulatory requirements.
About Butterfield and the Transaction
Carlyle invested in Butterfield in March 2010 through Carlyle Global Financial Services Partners.
Established in 1958, Butterfield is the largest independent Bermuda-based depository institution. A publicly traded company, Butterfield shares are listed on the New York (NYSE), Bermuda (BSX) and Cayman Islands (CSX) stock exchanges. With operations in six international jurisdictions, Butterfield is a full service community bank and a provider of specialized financial services.
On March 2, 2010, Carlyle, along with Canadian Imperial Bank of Commerce, Wellcome Trust, The Bermuda Government Pension Funds, and certain other investors (collectively the “Investors”), announced an investment of $550 million in a recapitalization of Butterfield. In exchange for the $550 million investment, the Investors received an 82.5% ownership stake in the Company.
As part of the transaction, the Company launched a rights offering of $130 million on April 12, 2010, so as to allow the pre-transaction shareholders to participate in the recapitalization of the Company. The rights offering, which closed on May 12, 2010, was fully subscribed and the proceeds were used to repurchase shares from the Investors. Carlyle and the Investors viewed the success of the rights offering as an important step towards aligning the interests of the Company’s pro forma shareholders, while offering the pre-transaction shareholders an opportunity to minimize the level of dilution.
Key Value Creation Metrics
During Carlyle’s period of ownership, Butterfield was focused on streamlining its multi-jurisdictional operations, de-risking its balance sheet, generating new avenues of growth and strengthening its management team. During our investment, Butterfield expanded its deposit base 15% from $8.9 billion in 2009 to $10.0 billion in 2016 while also increasing its net interest income from $187 million to $258 million, representing an increase of 38%, and growing from a net income loss of $223 million in 2009 to a positive core net income of $123 million in 2016.
Highlights of value creation initiatives during Carlyle’s investment include:
- Identified and implemented best practices involving asset & liability, capital and investment portfolio management:
- Through an enhanced understanding of Butterfield’s stable deposit franchise, drove meaningful changes to the investment portfolio including extending duration and improving asset allocation
- Investment portfolio changes taken immediately after Carlyle’s investment were key to growing Butterfield’s net interest income and resulted in a lower risk, less interest-rate sensitive balance sheet that was more capital efficient, liquid and significantly more profitable
- Furthermore, in an effort to de-risk and improve its balance sheet, Butterfield sold a portfolio of held-to-maturity asset-backed securities for a gain of $820 million
- Implemented a number of strategic initiatives that re-focused the bank on its core businesses:
- Sold non-core subsidiaries including its Hong Kong, Malta and Barbados operations
- Completed three accretive acquisitions, which included HSBC’s Bermuda Trust Company Ltd, HSBC’s retail and corporate banking business in the Cayman Islands and Legis Group’s trust and fiduciary services business
- Completed numerous internal initiatives that decreased costs and improved efficiency:
- Restructured its employee post-retirement medical benefit plan. Additionally, Butterfield successfully implemented the conversion of its back office IT systems into one centralized platform
- Bolstered Butterfield’s management team:
- Made several executive leadership appointments, including Michael Collins as CEO, Michael Schrum as CFO, Daniel Frumkin as Chief Risk Officer, Michael Neff as Head of Asset Management and Richard Saunders as Head of European Asset Management
Executing Successful Sale in the Public Markets
Carlyle exited its investment in Butterfield through a public listing on the NYSE in September 2016 and through a subsequent follow-on public offering in February 2017.
On September 16, 2016, Butterfield completed a public listing on the New York Stock Exchange by selling 12 million common shares for a total offering size of $288 million; 6 million shares were sold by Butterfield in the form of primary capital ($140 million) and 6 million shares were sold by the institutional shareholders ($148 million) who participated in the Bank’s 2010 recapitalization, including Carlyle who sold 3 million shares.
On February 23, 2017, Butterfield completed a follow-on public offering by selling 11 million common shares (including the greenshoe) for a total offering size of $349 million; all of the shares were sold by the institutional shareholders who participated in the Bank’s 2010 recapitalization, including Carlyle who sold its remaining 7.6 million shares.