The Tribune

By NEIL HARTNELL

Tribune Business Editor

A 0.1 per cent increase in the Bahamas' share of global international financial centre (IFC) bank deposits represents "a mixed bag" for this nation, a leading attorney yesterday telling Tribune Business the incoming Christie administration faced a delicate "balancing act" to secure the industry's future.

Brian Moree, senior partner at McKinney, Bancroft & Hughes, said the minor increase in the Bahamas' bank deposit market share, as pinpointed by two European researchers using Bank for International Settlements (BIS) data, showed this nation had been "more resilient than many other IFCs" in protecting its existing financial services business book.

But, while unable to vouch for the data's accuracy, Mr Moree said the downside - as suggested by the statistics - was that the Bahamas had failed to generate "significant growth". Many in the sector harboured the perception that the financial services industry was 'treading water' or standing still, something he described as an "undesirable situation".

And, analysing the implications of France electing a Socialist government, Mr Moree told Tribune Business that pressure on French banks to exit IFCs such as the Bahamas, and for a general clampdown on the sector, was only set to increase further - especially from Europe.

And, as a result, he suggested "a major challenge" for the new PLP government would be "balancing two realities" - the need for the Bahamas to comply with international tax and regulatory initiatives, with maintaining a business model attractive to international banks and companies. Getting this balance right was vital "to securing our future and that of the financial services industry", Mr Moree said.

A 2012 paper by two European researchers, which attempts to evaluate how effective the G-20/OECD tax transparency crackdown on IFCs has been, used BIS data to place the Bahamas among those centres that had, between 2007 and 2011, seen an increase in bank deposits as a percentage of the total held by IFCs.

The Bahamas' saw only a 0.1 per cent increase, indicating its share of global IFC bank deposits only expanded by around $2.7-$5 billion over that four year period. Nevertheless, the report placed this nation ahead of Jersey, which saw a 4 per cent or $110 billion decline, and Luxembourg, which saw a more than 1 per cent market share drop.

Other notable market share losers, according the report by researchers at the University of Copenhagen and University of Paris, were Switzerland, the Isle of Man, Guernsey and the Netherlands Antilles.

Still, the Bahamas was well behind Hong Kong, which the paper said gained $65 billion in bank deposits between 2007 and 2011, a 2.5 per cent market share increase. Others enjoying bank deposit market share increases were Singapore and the Cayman Islands, both with more than 2 per cent growth.

While unable to verify the report's accuracy, and that of its statistic, Mr Moree said it added to the perception of many Bahamas-based financial services professionals that the sector - while stable - was not growing.

"As a general observation I do believe that the Bahamas has been more resilient than many other IFCs in retaining its existing business, notwithstanding the aggressive actions of the international community through the OECD and the G-20 countries, seeking additional exchange of information arrangements," Mr Moree told Tribune Business.

"That [report] supports something which many of us have felt industry-wide without the empirical data to support it. On the one hand, the country data supports the general prognosis that while we've been resilient in protecting our base of business, it's also true to say it's been difficult to achieve any growth."

He added: "While we've protected the existing base of business, there's no empirical data to suggest we've enjoyed significant growth. That is not a desirable situation, because for the financial industry to continue to be a viable industry in the Bahamas, businesses have got to be able to achieve appreciable levels of growth.

"In the business world, staying flat is not an acceptable option. We have to find acceptable levels of growth."

Provided the data contained in the European researchers' report was correct, Mr Moree told Tribune Business of its findings: "It's a mix of good news and bad news for the Bahamas.

"We've been able to retain the existing base of business, but on the other hand we've not achieved any significant growth, which is not good in the short and medium-term."

The report also noted that, for IFCs, "more tax treaties mean less deposits". The Bahamas has signed some 29 Tax Information Exchange Agreements (TIEAs), among the highest number of agreements in the country sample used. Those nations, like the Bahamas, with more tax treaties, were shown as achieving lower bank deposit growth rates.

And the international political climate may only get tougher for the Bahamas and other IFCs, after socialist Francois Hollande defeated Nikolas Sarkozy in the French presidential election.

France has been among the leading advocates of the IFC global crackdown, and Mr Moree told Tribune Business: "Obviously, the recent election in France is not, in my view, a good harbinger for the future of the financial services industry."

The new French government was likely to lean left, and in doing so "put more pressure on IFCs" as it sought to plug supposed revenue leakages and finance ambitious social spending initiatives.

And Mr Moree "agreed 100 per cent" that a Hollande administration was also likely to pressurise French banks with subsidiaries in IFCs to exit doing business in these centres. The former Sarkozy government previously pushed BNP Paribas to leave the Bahamas, and there are several major French institutions remaining, such as SG Hambros Bank & Trust (Bahamas).

"We saw BNP leave," Mr Moree confirmed, "and the Socialist government is likely to put more pressure on French banks not to have operations in the IFCs.

"The banks still here are likely to face increased pressure from their own government to curtail their activities in IFCs, and that could create some difficulties for us here."

Mr Moree described these as "particularly disturbing developments", given the financial services industry's importance to growing and maintaining the Bahamian middle class.

And he noted the tone taken by the European researchers' report, which urged the OECD/G-20 to push for the "automatic" exchange of information, rather than the TIEA networks the Bahamas is part of.

These agreements build in some safeguards for the Bahamas, as they prevent so-called 'fishing expeditions' by requesting states, who must furnish this nation with specific details on the information being sought.

Noting that European nations, in particular, were looking to ultimately move to an "automatic" tax information regime, Mr Moree said: "This is going to be a major challenge for the new government in balancing two realities.

"First reality is we have to remain a compliant international financial centre if we're going to have a viable industry going forward. In my view, there is no option; we cannot be a rogue nation.

"But we have to balance being a compliant IFC while, at the same time, preserving a viable model for international business in the Bahamas.

"To me, that's the challenge for the Government. How the Bahamas continues to be a responsible member of the international community, discharging reasonable obligations, while at the same time maintaining a business model for multinational institutions and international banks to do business in IFCs, and particularly the Bahamas.

"The Government has to find a way to balance these interests to secure our future and that of the financial services industry."