| Ireland remains a vibrant profit centre for international financial services |
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| Despite recent high profile job losses, financial services remain a vibrant profit centre and recruitment prospects are expected to remain stable, writes Fiona Reddan. |
Everybody wants to know if Ireland will escape the financial services downturn that has hit the Irish technology industry.
Although there are indications there will be some paring down of staff in financial services, the overall outlook for the sector remains positive.
Internationally, most of the leading financial institutions, many with an Irish presence, have announced job cuts in recent months. While there has been no obvious knock-on effect in Ireland, this could change and some cuts in financial services are likely. However, the extent of these should be small when compared to international levels. Thus far, the financial services sector has emerged relatively unscathed.
To date, there have been no lay-offs in the IFSC. There may yet be none for a variety of reasons. To begin with, many companies are relatively new to the IFSC, and therefore commenced operations in a very cost-efficient manner, operating with just the minimum amount of staff required. Moreover, several companies have followed the global policy of initiating a recruitment freeze, whereby no further staff will be hired in the near future. There has also been some natural attrition, due to people leaving for their own reasons and these employees have not been replaced.
The majority of financial services job cuts internationally have been in the investment banking divisions. Commenting on this trend, Michael D’Souza, managing director of Merrill Lynch Capital Markets Bank in Ireland remarked that this was a result of the direction of many of the world’s capital markets. He said ‘Client demand has been reduced for some investment banking services, hence some players had decided to rightsize.’ The fact that Ireland is a back-office location for many IFSC companies could serve to safeguard against cuts. According to D’Souza, ‘Back offices tend to be more volume sensitive than simply direction sensitive, and basic functions such as settling trades need to be implemented, regardless of whether the client is buying or selling.’
While some organisations are intent on cost cutting, others are looking to grow their existing operations. Richard Wanless, director of Societe Generale Finance Ireland, believes that there is ‘potential for future growth in Ireland, in fact we are currently speaking with the Paris office on developing new products for Ireland.’ Withstanding current market conditions is paramount however, and expansion for many organisations will mean new projects that generate income, rather than new jobs.
Ireland’s inherent attractiveness as a location for financial services means that other less cost-effective locations will be the first to feel the brunt of job cuts. Said Wanless, ‘Dublin shouldn’t suffer that much due to fiscal advantage, it wouldn’t make sense to cut back in Dublin when you could do so in a less cost-efficient location.’ D’Souza agrees with this, pointing also to the ‘available pool of educated people.’
However, the relative cost advantage Dublin once had is fading, with increasing wage costs. Last year’s decision to remove the ceiling on employers PRSI has further fueled this argument, by substantially increasing the wage bills of many financial services companies, both international and domestic.
Moreover, the 10 economists which feature in this month’s Economist survey (see page 4) have identified this as being detrimental to the economic position of Ireland internationally. They believe reversal of the employers’ PRSI decision will strengthen Ireland’s position in a global downturn, which is of particular relevance given the current market climate.
According to Austin Hughes, chief economist at IIB Bank, ‘I still find it hard to understand the logic behind last year’s removal of the cap on employers’ PRSI contributions. Increasing the effective cost of labour in this manner seems to go completely against the thrust of supply-side policies. If Ireland is to move up the ‘value-added’ chain, this will serve as a major disincentive to employing more highly paid workers. Last year’s decision should be reversed. Acknowledging this mistake would underline a determination to assist competitiveness and would be a very healthy development.’
Echoing these thoughts, Colin Hunt, head of research with Goodbody Stockbrokers called for a ‘u-turn’ of the PRSI issue. He said ‘Last year’s decision to abolish the ceiling on Employer’s PRSI was a bad policy move whose detrimental effect on Ireland’s profitability has now been aggravated by slowing world growth...The decision significantly increased the tax burden on those industries that Ireland is seeking to retain and attract. There is no logic in penalising companies for paying decent wages particularly at a time of heightened employment and investment uncertainty.’ The Financial Services Industry Association is also calling for a remedy to this situation.
Looking at recruitment levels, the rate of growth in international financial services is expected to become more stable, rather than suffer a large fall off. Anecdotal evidence would suggest that the typical yearly IFSC staff attrition rates of 15 per cent per year have fallen slightly. People seem less inclined to move jobs than they did last year.
Overall, the impact of the international slowdown on IFSC operations is difficult to predict, and it seems the next few months will tell a lot. D’Souza feels that no country will be entirely immune to the downturn, and international events will undoubtedly have an impact on operations in the IFSC, but to what extent he cannot be certain. He is looking to the future with ‘cautious optimism.’ Wanless echoes this belief, but would expect that the knock-on effect will not be calamitous for the IFSC. Ireland, it seems, remains an attractive center for international business. |
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| Article appeared in the September 2001 issue.
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