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Financial Crisis Hits Jersey Finance Industry Profits

Thursday, May 10, 2012

The Jersey government's latest statistical report shows a significant decline in the profitability and size of the nation's financial services industry since the start of the financial crisis, putting pressure on Jersey tax receipts. Recent figures for 2011, however, show modest signs of improvements.

The Gross Value Added (GVA) of the financial services sector declined nominally in 2011, accounting for 40.5% of the Jersey economy, against 41% in 2010.

Banking deposits have declined from a peak of GBP219.5bn (USD353bn) in 2007, to GBP167.3bn in 2011, slightly higher than the GBP167.2bn recorded in 2010.

The total value of collective funds administered from Jersey grew between 2001 and 2008, reaching GBP239.9bn, but declined by almost a third in the year 2009 alone, to GBP163bn. This figure has since increased to GBP193.7bn in 2011. The number of funds administered from Jersey has more than quadrupled over the last decade.

The number of investment business clients declined by more than 1,000 between September 2008 and September 2009. September 2011 reported an increase in the number of clients of 200 (1%) compared with 2010. This increase was reflected in the value of funds managed (up 1% on 2010). Meanwhile, the average asset value per client has remained at a similar level to 2010.

Despite the challenging environment for many sectors, the report says Jersey is becoming a key low-tax jurisdiction for corporate registrations, with 33,194 live companies on the register as of September 30, 2011.

Despite slow improvements in the financial services sector as the global economy recovers, the total net profit (on which Jersey tax is levied) of Jersey's financial services sector in 2010 was estimated to be GBP605m. This total represents a fall of a quarter (25%) compared with 2009, which itself had seen a fall of almost a half (-47%) compared with 2008. Thus, the total net profit of Jersey’s finance industry, has fallen by 60% in the two years to 2010, and consequently affected the sector's contribution to the government's coffers.

Profits in the banking sub-sector fell by almost a third (-32%) in 2010 to GBP350m. Three-fifths (60%) of companies engaged in banking activities recorded a fall in profits on an annual basis. Over the two-year-period since 2008, banking profits have declined by 70%.

Profits recorded by the fund management sub-sector fell by about a fifth (-20%) to GBP70m in 2010. The trust and company administration and accountancy subsectors recorded similar declines in profit, each down by 19% on an annual basis.

Although the decline in profits recorded by fund management reflects the volatile nature of global markets in recent years, it is the first time in eight years that the trust and company administration sub-sector has reported a fall in annual profits. Estimated profits for trust and company administration (excluding legal activities) declined to GBP117m in 2010, with more than two-fifths (42%) of such companies reporting a reduction in profits compared with 2009. This sub-sector had previously experienced ongoing growth in profits each year since 2002.

The legal sub-sector was the only area to report growth in profits in 2010. Annual net profits for this sub-sector were estimated to have risen by more than a third (34%) compared with 2009, to approximately GBP50m.

Profit per employee across the finance sector in 2010 was GBP51,000 per full-time employee, a fall of a quarter (25%) on 2009, reflecting the large decrease seen in total profits in 2010.

Taxes in Jersey comprise 69% from income taxes, 11% from Goods and Services Tax (GST), 4% from stamp duty, 9% from impots duty, and 7% from other taxes and income. Total income tax revenue in 2010 was GBP394m, GBP114m less than in 2009. The share of contributed by GST revenues is expected to almost double by 2012 with the increase in the headline rate from 3% to 5%.