Transcript Slide 1

IFCs and The Global
Recession
Geoff Cook - Chief Executive
Jersey Finance
Conventional Wisdom –
The full story…
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Two years ago, few people had heard of the term credit
crunch, but the phrase has now entered dictionaries.
Defined as "a severe shortage of money or credit", the
start of the phenomenon has been pinpointed as 9
August 2007 when bad news from French bank BNP
Paribas triggered sharp rise in the cost of credit, and
made the financial world realise how serious the
situation was.
The roots of the credit crunch, however, started earlier.
Worldwide….What happened
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Global economy experiences the deepest downturn since just after the Second World War
“Worldwide we have an enormous loss of wealth and financial stability” – World Bank
Chief Justin Yifu Lin
US banks lend on risky mortgages (known as ‘sub prime’ market) believing US house
prices would continue to rise
Banks and investors around the world ‘buy’ the risk in these mortgages
Instead, house prices fall and people can not repay their mortgages and banks and
investors worldwide are affected
Banks stop lending and investors stop lending to the banks, as they were not confident
that the banks wouldn’t go bankrupt
Worldwide….What happened next?
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As a result, booming economies in the East sharply declined and countries
such as China saw a huge decrease in export markets
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Estimates suggest that an additional 55 to 90 million people could be
trapped in poverty due to the recession
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The International Monetary Fund estimated potential losses from the
credit crunch could reach $1 trillion
So what does $1 trillion look like….with all
this talk about stimulus, bailouts and losses?
We’ll start with a $100 dollar note – currently the largest US
denomination in general circulation
A packet of one hundred $100 notes about 1cm and contains $10,000 (it
would fit in your pocket easily and you would have lots of fun spending it!!! )
Believe it or not, but this pile below is $1 million dollars (100 packets of
$10,000). You could walk around with it in your bag with no problem…
While $1 million may look a little unimpressive.
$100 million will fit neatly onto a standard pallet board (like you get in
shipping)
And $1 billion….
And now this is what $1 TRILLION looks like – which is a million million –
1,000,000,000,000
Notice how the pallet boards are all double stacked. So remember next time
you hear someone talk about the phrase $1 trillion…that is what they are
talking about
Western World….What happened?
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The crisis from the ‘sub prime’ lending in the US led to Wall Street Bank
Lehman Brothers posting losses of $3.9 billion and days later filed for
bankruptcy – becoming the first major bank to collapse since the start of the
crisis – employees in the US and UK were axed immediately
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Banks, companies and individuals stopped being able to get credit
Western World….
What happened next?
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Recessions, job losses, bankruptcies, repossessions began to increase
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Governments decided to nationalise banks from Iceland to France
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Central banks in US and Canada and some parts of Europe took the
unprecedented stop to co-ordinate interest rate cuts to encourage lending
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US Federal Bank and European Central Bank tried to bolster the money
markets by making funds available for banks to borrow more cheaply
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European Commission unveiled an economic recovery plan worth €200
billion to save million of European jobs, stimulate spending and boost
consumer confidence
UK….What happened?
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The UK is severely effected for the same reasons as the US
The first UK bank to fall is Northern Rock, which had built its growth on
wholesale funding
UK….What happened next?
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Total government debt estimated to reach £1.4 trillion due to banks being
nationalised/bailed out by the government
Northern Rock was nationalised after the government failed to find a buyer
(Feb’08)
The Bank of England unveiled a multi-billion pound plan to help creditsqueezed banks, allowing them to swap risky mortgage debts for secure
government bonds (April’08)
The UK Government announced the first of several bank bail-out packages
to make available £400 billion of money (Oct’08)
Royal Bank of Scotland is taken into public ownership (now 84%) after
bank announced a record UK corporate loss (Feb’09)
Government took a controlling share (65%) of Lloyds Banking Group
The credit crunch caused deep recession in UK leading to high
unemployment and sharp falls in the house price market
Jersey….What happened?
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The credit crisis results in focused political and media attention on Jersey
and other offshore jurisdictions, with accusations of blame in causing the
economic crisis through shadow banking activities
Jersey….What happened next?
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The States of Jersey have decided to inject £44million into the economy to
get the Island through the recession to support workers and businesses
The island has seen a decrease in jobs available in the market, but has not
witnessed the same level of redundancies as mainland UK or Europe
House prices have fallenslightly due to lower rates of mortgages being
available from the banks
Source: www.ft.com
But the credit bubble was building long before sub prime
And Pubic Finances were already under pressure
Total tax revenue as a percentage of GDP, 2004
Public Finances under pressure
Ratio of the inactive population aged 65 and over to the labour force percentage
Drivers For Change
Growing US Budget Deficit
Growing UK Budget Deficit
Drivers For Change
EU Monetary Affairs Commissioner
Joaquin Almunia has warned Brussels
could soon take action against EU
member states which let their budget
deficits exceed 3% of GDP. France is one
of the first in the firing line.
Chancellor Angela Merkel has
warned German jobless figures
will rise despite her new
government's focus on tackling
the financial downturn.
Drivers For Change
“Never again will the American taxpayer
be held hostage by a bank that is too big to
fail”
US economy loses 4.2m jobs
in 2009,unemployment at
20 year high, fiscal deficit
exceeds $1trn
The Tax Gap?
It’s not here Mr Brown
UK Public Finance Costs: Borrowing Pre Crisis
Net Debt
% GDP
GDP
2003 - 04
2004 -05
2005 -06
2006 - 07
381.5bn
422.1bn
461.6bn
497.9bn
32.1
34
35.3
36
1118bn
1184bn
1233bn
1303bn
Source: Debt Management Office HM Treasury and Office
of National Statistics
2009 - ‘Pride and Prejudice’
• G20 scrutiny and financial crisis – London/Pittsburgh
• IMF Review
• HMT - The Foot review
• Obama and the STHAA/Heart Act
• AIFM and Enlargement of the European Savings Directive
• Business Taxation Code of Conduct group – 0/10
• Anti Tax Haven Campaigning by NGOs and others
Challenge
Response
G20 Scrutiny
PR – Political 100, OECD Whitelisted Compliant Confidentiality
IMF Review
Best ratings by the IMF to date
HMT - The
Foot review
Financially stable and valuable, tax
leakage worries overblown
Obama Heart
Act
Coordinated response – prospects
improving
EU Measures
AIFM/ EUSD
Proactive EU engagement – Status quo
improving
Business
Taxation –
0/10
Code compliant – Coordinated action
underway
Anti Tax
Haven
Campaigning
by NGOs
GFCI – No 13 IFC, STEP IFC of the
Year, IMF, Foot Review, Developing
Countries engagement, NGO liaison
Rating
AIFM
• Original proposals highly problematic and included three year freeze
on the sale in the EU of offshore funds
• Amended proposals from EU parliament and EU Council to
continue private placement regime for third countries
• Jersey to lobby for ‘opt-in’ passport
• Government to meet with key influencers in Brussels beginning of
February
Zero/ten
• 0/10 has NOT been found to be non-compliant with the EU Code of
Conduct on Business Taxation
• Fundamental importance of tax neutrality to our Financial Services
Industry
• Changes to the tax law to be made to create certainty for funds and
underlying portfolio companies – notably a tax exemption of
collective investment funds, including securitisation vehicles, in
accordance with international norms
• Continuing programme of engagement and consultation between
Industry and Government Departments
• Next Industry briefing 23rd February
The Offering - A World Class Jurisdiction
• The world’s leading Trust
jurisdiction
• Major international
Banking centre
• Leading European
Alternative Funds platform
The Opportunity – Growth in GDP
Global GDP Growth (Percent; quarter-over-quarter, annualised)
Source: IMF staff estimates
The Opportunity – Growth in HNWI
Getting the message across
Fuelled by Brainpower -Technical 2009
• Developed over 21 laws and regulations
• Supported by 5,200 hours of
practitioner time, through Jersey
Finance working groups
• Contributed an equivalent value of
£2.5m
•London
•Bristol
•Birmingham
•Leeds
•Edinburgh
•Manchester
2009 Events and Visits Programme
•Paris
•Geneva
•Berlin
•Lake Como
•Beijing
•Hong Kong
•Singapore
•Shanghai
•Mumbai
•New Delhi
•Moscow
•Warsaw
•Abu Dhabi
•Bahrain
•Dubai
5,500 people
1,921 Members
160 Member Firms
A similar programme is planned for 2010
Events and Visits Spend by Region
Middle East
3%
Eastern
Europe
3%
China
17%
UK
45%
Europe
21%
India
11%
2010 - Embracing a decade of opportunity
• Reap the Reputation Dividend
• Open for Business, Open for Businesses
•
World Class Expertise
• Global Reach
Final Thought…
Remember we can’t change the direction of the
wind, but we can change our sails
Thank you
Question and Answer Session