Candia Dames, Nassau Guardian News Editor, released the following story on the state of the financial services industry:
**Global Financial Crisis**
The worst of the global financial crisis is yet to come, according to the majority of the 40 local financial services industry professionals who participated in a Nassau Guardian survey in cooperation with the Bahamas Financial Services Board (BFSB).
“*I’m not sure that we have yet hit the bottom,*” said attorney Brian Moree of McKinney Bancroft & Hughes, who chaired the Bahamas Financial Services Consultative Forum under the Christie administration.
Survey participants came from across the vital sector and were asked to respond to 13 questions about the state of the industry, as the economic and financial crisis impacting countries around the world continued to create jitters in offshore jurisdictions.
Wendy Warren, CEO and executive director of BFSB, pointed out that the financial services industry is the second largest industry in the country.
“*It is for this reason that BFSB welcomed the opportunity to work with The Nassau Guardian in producing this survey of the financial services sector,*” she said. *”This survey along with other initiatives will serve to increase the flow of information regarding our financial services sector, the role it plays and what action is underway to reinforce and expand its vital contribution to our country*.”
Of the 40 survey respondents, only 11 said the worst of the crisis has passed.
*”Notwithstanding the massive stimulus package which the American Congress passed and which the American president signed and his new initiative on the housing program, the markets, the Dow Jones Average, hit its lowest since 2006 (last Thursday), so all indicators are that frankly nobody really knows what will work*,” Moree said, *”and that is the harsh reality*.”
By most benchmarks, the world is in a deep economic crisis with significant and ongoing negative implications for countries, companies and citizens, Warren told The Nassau Guardian.
*”The crisis in the financial services industry is a major contributor to the depressed economic developments occurring on every continent,*” she said.
All of the participants who responded to a question about the future of the local industry said The Bahamas will have to make significant changes if it intends for its number two industry to remain competitive, and 30 of them agreed that the government should focus more of its resources on the promotion of financial services as the tourism sector slows.
Unlike Moree, Ryan Pinder, an international tax attorney at Becker and Poliakoff in Nassau, believes the worst of the financial crisis is over.
“*I think that the hundreds of millions and approaching over a billion dollars in stimulus of the U.S. government will make its way through the system to a point where it will alleviate some of the credit concerns in the United States and hopefully globally*,” Pinder said.
*”I think we’ve seen evidence of that in the U.S. housing market, where actually in January there was a slight up-tick in sales volume, so I think that, and I certainly hope that, the worst of the credit crunch is over. It might take a little bit of time for us to get on the upswing. It’s not going to go up as fast as it went down, but I do think we have seen the bottom*.”
However, Pinder added, *”We will be in pain for a little bit.*”
Thirty-two of the 40 industry players surveyed by The Nassau Guardian said the cancellation and delay of various investment projects will significantly impact foreign currency reserves; three said there will be no impact and the remainder reserved judgment.
In his new year’s address late last month, Prime Minister Hubert Ingraham reported that foreign direct investment through September 2008 recorded an increase of $83.3 million or 7.3 percent above the corresponding period of the previous year, and this firmness in investment inflow appears to be continuing.
As a consequence of this and the moderation in credit expansion, the country’s international reserves position recorded an increase of $108.8 million at the end of 2008 which compares with the decrease of $45.6 million at the end of the previous year, he reported.
In that same address, the prime minister said while the financial services sector continues to offer rewarding employment, new job creation in the sector – in banking, insurance and securities – will probably remain subdued in the foreseeable future.
Back in November, he said the country’s offshore financial services sector was facing new challenges as some major countries were advancing the erroneous premise that, somehow, the offshore centers are related to the current crisis. They will likely use the crisis to advance their anti-offshore financial center agenda, he said.
There are growing signs of such a clampdown.
Late last week, the Independent newspaper in the United Kingdom said Britain is leading moves to end the privileged status of tax havens as part of a planned ‘global new deal’ to tackle the international recession.
It said Prime Minister Gordon Brown is believed to have won the support of other world leaders for a drive against offshore shelters used by large firms to cut their tax bills and avoid complex financial regulations. The paper said the new deal could be done at a summit of world leaders in London on April 2 and form part of a wider attempt to revive the global economy.
Sixteen respondents to The Nassau Guardian survey said current difficulties facing Swiss banking institutions will not impact confidence in this specific banking model. The other 20 respondents to this question, however, said there will be an impact. Pinder, the tax attorney, was one of them.
In a stunning move that caught the attention of offshore jurisdictions across the globe last week, UBS, the largest bank in Switzerland, agreed to reveal to U.S. federal authorities the names of some of the Americans suspected of using the bank’s offshore accounts to evade taxes. UBS, which admitted to conspiring to defraud the IRS, also agreed to pay $780 million as part of a deal to settle the criminal probe.
Professionals in offshore jurisdictions like The Bahamas are closely watching those developments.
*”It’s very difficult to say what the ramifications would be and we would obviously have to watch how it plays out,*” said Jan Mezulanik, chairman of the Association of International Banks and Trusts (AIBT) in The Bahamas. *”This is a discussion happening on the governmental level between Switzerland and the United States, so it’s very intricate and therefore very complex,*” he told The Nassau Guardian.
Many financial centers in the world benchmark themselves against Switzerland. Pinder said the UBS settlement will have *”a significantly adverse affect on the offshore private banking market*.”
*”Privacy rights and bank secrecy are being jeopardized by this agreement,”* he said.
*”I think you see that in some of the comments out of Switzerland. I think that Europe is going to notice what the United States has done with UBS and probably flex the same muscles with other offshore jurisdictions and really have an adverse affect on, at least the perception, of bank secrecy in offshore jurisdictions. Whether they actually penetrate that or not I think the perception is going to be there that it’s not as foolproof and as safe as once thought. Therefore, the confidence level is going to drop in the industry.”
Warren, meanwhile, said The Bahamas should anticipate that with the global repercussions felt by today’s financial crisis that the financial services industry will find itself in the crosshairs of policy makers and regulators worldwide. *”As a result, there will continue to be major changes in the landscape,*” she said.
In addition to concerns about the possible implications of difficulties in Switzerland, participants in The Nassau Guardian survey also indicated other concerns, like the impact an Obama presidency will likely have on the local financial services sector.