Bermuda may well face job losses as a result of the tectonic changes taking place in the US financial sector, local leaders said yesterday.

But with the new financial landscape evolving daily, the exact nature of change is still uncertain.

Finance Minister Paula Cox said yesterday Government was closely monitoring events like the collapse of Lehman Brothers earlier this week and the US Federal Reserve's decision to bail out AIG — which is said to employ 200 people on the Island — on Tuesday.

Minister Cox said there are "clear signals" local employment will be impacted. "While it is far too early to determine with any certainty what precise impact the current financial events unfolding in the US will have on Bermuda, there are clear signals that the changes will have some potential employment repercussions in Bermuda and perhaps implications for financing of some private sector projects," she said.

"I have indicated already that the growth prospects for our economy through the balance of 2008 are lower as a result of the continuing fallout of the sub-prime debacle.

"In the face of the most recent events involving Lehman Brothers and American International Group (AIG), that outlook may very well characterise 2009 as well.

"In relation to the most recent events, my technical officers in the Ministry of Finance have been in touch with all relevant authorities, including the Bermuda Monetary Authority (BMA) and the Ministry of Tourism and Transport. Lehman Brothers had important financial relationships with private sector entities in Bermuda."

Lehman is financing Scout Real Estate Capital's planned $300-million development of the former Wyndham resort in Southampton.

It was not clear yesterday what effect Lehman's bankruptcy filing might have on the project.

Ms Cox added: "Likewise, AIG has an important footprint in Bermuda as it does in some 130 other countries around the world.

"That is why it is not surprising that the US Government has intervened in the manner that it has. Global financial stability is clearly at stake.

"The Ministry of Finance will continue to update the public on the basis of confirmed information in the wake of any further significant developments."

David Ezekiel, the president of the Association of Bermuda International Companies, agreed that job losses on the Island seem inevitable given the interwoven relationship of international business on the Island with its neighbours and trading partners.

"One has to think, without speculation, the answer is yes (there will be job losses)," he said. "Whether directly with the firms involved or just as a result of things being in a downturn."

Mr. Ezekiel said companies in Bermuda may elect not to replace departing staff rather than announcing major cuts.

While AIG employees may be relieved after the US Fed's action, "a lot of that story is now to be written," he added, as all eyes will be watching what the newly headed company does next.

"I think the effects will be felt in waves, much as they have been through the sub prime issue itself."

And the events of the last few weeks have spiralling effects, he added, as many people have been hit directly in their balance sheets. "People will be feeling poorer," he said. "People are poorer, they will be rationalising."

Mr. Ezekiel said many people in Bermuda will end up feeling the effects of the volatile markets in their pension funds and that tourism could also suffer from the ever worsening economic situation.

The best thing the Island could do to protect itself is to diversify the economy, he said.

"We need to create more legs to the economic stool, but that is easier said than done. We have become so dependent on international business and what happens with it."

While the AIG crisis and others pose challenges, Bermuda's internal financial institutions are in good position to deal with these, said Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers.

"The rapid demise of AIG is a challenge for its employees, shareholders and customers," he said yesterday. "The US government's bailout appears to provide breathing space for an orderly transition.

"The AIG insurance subsidiaries are well capitalised and well regulated here and elsewhere.

"The ongoing work of the Bermuda Monetary Authority (BMA) puts Bermuda in a good position to work with its international regulatory colleagues to deal appropriately with matters involving insurance groups with various regulatory domiciles."

Employees at AIG speaking on the condition of anonymity seemed equally unperturbed.

"Everyone was kind of expecting it," one female employee told The Royal Gazette, of the Fed announcement.

The worker said that everything seemed to be business as usual within the Bermuda offices and that she herself was not at all worried about the situation.

She refused to comment, however, on whether management within Bermuda were keeping staff informed of developments and how they might affect the local operations.