Citi job losses highlight Bermuda’s high cost of doing business
The news that Citi Hedge Fund Services is to relocate 105 jobs out of Bermuda continued to a trend of international business jobs being lost to locations where it is less expensive to do business.
In a brief statement yesterday, parent company Citigroup said the move was intended “to consolidate Citi's support functions, reduce overall expenses and create operating efficiencies”.
The Island struggles to be competitive in the international labour market because of its high cost of living relative to other jurisdictions.
Multinational companies like Citigroup and global Bermuda insurance companies have a choice of where to base staff. Many gather data on employment costs in different jurisdictions.
“Fund administration can be performed anywhere as there are few or no tax consequences of where it is done,” said Peter Everson, a board member of the Bermuda Chamber of Commerce, yesterday.
“The large global players such as Citi do have direct cost comparisons between individual offices and thus can accurately monitor each location.
“Thus this announcement is similar to Ace last winter ... there are cheaper places than Bermuda.”
Last October, Ace announced that 17 jobs were to go in Bermuda as the company consolidated its financial management operations into an operation in Philadelphia.
Asked whether he believed the Citi job cuts were a result of the relatively high cost of doing business in Bermuda, George Hutchings, chairman of the Association of Bermuda International Companies (ABIC), said there was not enough information in Citigroup's public statement to comment specifically.
“ABIC is aware that the cost challenges of operating in Bermuda if your business model relies on fees is quite different and perhaps more challenging than it is if your business model depends on insurance or reinsurance premiums,” he added.
Asked how the Island could stem international business job losses, he suggested: “Bermudians, businesses and Government must be as accommodating, efficient, cost effective and friendly as possible at every conceivable touch point with international business.
“Many people and institutions already do so. However, the entire Island needs to think of international business as our personal clients because those organisations indirectly pay virtually all of our bills regardless of who you may be.”
Pressure to improve productivity has increased on many multinationals since the financial markets meltdown of 2008.
In an interview with this newspaper last year, Catlin Group CEO Stephen Catlin spelled it out.
“We know exactly what it costs to run each office and the costs per head of our employees, so we are constantly comparing and contrasting,” Mr Catlin said.
“All of us who run global companies have a choice of where we employ people. We need our underwriters at the coal face they have to be where the business is done but the support for those underwriters does not have to be in the same place
“Like every public company, we have a fiduciary responsibility to our shareholders to keep expenses down. And our people are a large part of our expenses.”
Catlin is based in Bermuda and has 47 offices around the world.
In another interview a year ago, Hiscox Bermuda CEO Charles Dupplin also made clear that employment cost comparisons by location were a regular part of managing international companies.
“When you take on a junior accountant, it's much more expensive to do it here, than in London, and more expensive again than Lisbon, where we also have an office,” Mr Dupplin said. “Bermuda is three to four times more expensive than Lisbon.”
He conceded that “if a loaf of bread costs $7 in A1 and 59p in Tesco's in London, then of course, you have to pay people differently”.
He added: “The cost of employing people here makes it difficult for me to justify to my own board, if we needed ten more staff, that they should be taken on in Bermuda.”
At the time of this interview payroll tax was levied at a rate of 16 percent. This year that was rolled back to 14 percent.
Citi Hedge Fund Services was in May this year served with a summons as part of a lawsuit brought by the trustee and liquidator of fraudster Bernard Madoff's company.
As the administrator for Bermuda-based Madoff feeder fund Kingate Global, the Citi unit has been named in the lawsuit and accused of failing to verify Madoff's pricing information.
Citigroup gave no indication that the lawsuit was a factor in the decision to relocate the jobs.