Over the next decade, a convergence of trends and events will create significant pressures on banks and the banking system. Not least among these trends and events are the generational transference of wealth estimated to be in the region of $37 trillion dollars, the retirement demands of baby boomers on the world’s most powerful economy and the inevitable outsourcing of ‘white collar’ jobs.
As part of a significant regional offshore financial services centre, The Bahamas will see significant changes in its banking sector as banks, the primary vehicle for channeling and managing both wealth and money, respond to these changes.
Professor Beat Bernetof the Swiss Institute of Banking and Finance observed that with the exception of Switzerland’s largest banks, Credit Suisse and UBS, banks both in Europe and the US are looking at cross-border mergers to stay competitive.
Professor Bernet observed however that “big mergers belong to the 1990s.”
“Today we have to focus more on new business models which open up opportunities to profit from economies of scale…without the costs of full integration,” he told Swissinfo news service on the eve of the 2004 Finance Forum in Zurich held during the first week of November.
Interestingly enough Professor Bernet suggested that Switzerland’s largest banks, Credit Suisse and UBS should focus their efforts not in the US markets where they would be up against a host of large banks such as Wachovia and Citi but to focus on Europe and Asia.
“I think the core market for our banks in future should be Europe and Asia,” Professor Benet said. “Both Swiss players have a good position here, given their financial strength and improvements in profitability over the past few years. In strategic terms, they had some problems in the past, but I think they have now done their homework. The same cannot be said for many other European, and even American, competitors.”
According to an Economist’s survey on outsourcing, the American research group’ Forrester has estimated that by 2015, “America is expected to have lost 74,642 legal jobs to poorer countries, and Europe will have 118,712 fewer computer professionals.”
Banking lives and dies on its ability to harness information technology to gain strategic and economic advantage in a dynamic and fiercely competitive global market.
Professor Bernet is suggesting that already the Swiss banking giants which have a prominent presence in The Bahamas are looking to Asia not just to be able to provide better wealth management, enhance profits and shareholder value but to be positioned to take advantage of the inevitable rise in banking service know how in India.
The Economist outsourcing survey reports that a forthcoming McKinsey survey of global employment patterns in various service industries, including software engineering, banking and IT services, has found that these three industries – software engineering, banking and IT services – employ 20 million workers world wide.
Of the three, banking is the least remote. According to McKinsey’s findings “16% of all the work done by the world’s IT-services industry is carried out remotely, away from where these services are consumed”; the software industry has 6 percent of its work done remotely while banking as a mere 1 percent; but this is expected to change over the next decade.
IBM’s strategy head Bruce Harreld is quoted by the Economist as saying “the world’s companies between them spend about $19 trillion each year on sales, general and administrative expenses. Only $1.4 trillion-worth of this, has been outsourced to other firms.”
McKinsey’s researchers estimate that in “each of these industries half of the work could be moved abroad.”
When coupled with Mr. Harreld’s $19 trillion, spent by the “world’s companies”,among whom must be the major banking concerns, it is clear that the face of banking over the next few years will be considerably different than it is today.
The Minister of Financial Services and Investment Allyson Maynard-Gibson recently remarked on the depth of the Bahamian banking bench; when compared to regional competitors, Bahamians were the ones doing the bulk of the work in the offshore banking sector.
But the Minister’s justifiable observation could well by phyrric if stakeholders in the Bahamian offshore financial sector are unable to find ways of ensuring that the wave of change that had John Kerry and significant portions of the American public complaining bitterly about loss of jobs through outsourcing, has a more benign effect on the Bahamian banking sector and hence economy and standard of living.
Already India has built entire industries on the strength of its IT, software and manufacturing know how. The globalising trends that spawned outsourcing of manufacturing jobs will do likewise for service industries.
According to the Economist survey on outsourcing, as US manufacturers have turned to India and China to build products more economically, with resultant competitive prices for consumers and higher profits for manufacturers, so world companies will outsource ‘white collar’ jobs – as “India becomes expert at providing outsourced banking insurance and business services.”
The Bahamas’ offshore banking sector will not be immune to these trends. Since there are no major Bahamian offshore banks and the small Bahamian boutique banks are saddled by the growing costs of meeting ever higher regulatory hurdles, the sector is at the mercy of trends and developments that could well see the shrinking of the sector in terms of the number of players and the number of jobs.
Our competitors are a world away in India where armies of software engineers are fast putting together the next set of banking applications that will enable India to provide the banking services which will shift globalemployment in banking and insurance and as Dr. Gilbert Morris observed, the “banks here do make a contribution and do like being in The Bahamas, but we cannot expect them to go to the mat for us.”
“I think the core market for our banks in future should be Europe and Asia. Both Swiss players have a good position here, given their financial strength and improvements in profitability over the past few years. In strategic terms, they had some problems in the past, but I think they have now done their homework. The same cannot be said for many other European, and even American, competitors.”
C.E. Huggins, The Bahama Journal
