Bermuda's two largest banks reported contrasting financial performances during the past few months as the credit crunch in the United States spilled over into the tiny island's financial markets.

Butterfield Bank, the second-largest financial institution, recorded a US$16.5 million net loss during the second quarter of 2008 that included a US$50 million charge on investments.

The loss, which wiped out profit of US$35.9 million for the same period last year, was due to unrealised losses on two credit support agreements.

"Following successive quarters of sustained growth over a number of years, this quarter's results are disappointing," said Alan Thompson, the bank's president and chief executive officer.

Agreement to merge

The bank also announced that it had reached agreement to merge its international fund services businesses with those of Fulcrum Group to form Butterfield Fulcrum Group, an international fund services provider with operations in nine countries and assets under administration of approximately US$100 billion.

The Bank of Bermuda, the island's largest bank owned by the multinational HSBC Group, announced that its net profit rose by nine per cent to US$163 million during the first six months of this year.

The bank's operating profit also rose by 10 per cent to US$179 million for the first six months of 2008.

"I am pleased that we have been able to exhibit a 10 per cent increase in operating profit during the first six months of 2008 compared to the same period last year," said the bank's chief executive officer, Philip Butterfield.