There is always a temptation to read too much into statistics, to extrapolate from them conclusions which, on closer inspection, aren’t true.
Jersey’s financial services quarterly statistics are published today, and they show that bank deposits in the Island fell from £128.4bn to £107.8bn during Q2 2016. Yes, the graph goes down – it is a decline, but it’s not one from which anyone can or should conclude that there are problems within Jersey’s finance industry.
The main causes for the decline are known: it has been well documented that two banks have restructured. As ABN Amro Bank readies itself for a return to public ownership, it is retrenching back to its home base and consolidating its overseas presence; the HSBC Bank Middle East move from Jersey to Dubai reflects a natural migration for regulatory purposes.
The departure of the banks (who are expected to return their banking licences in the next quarter) has come in response to, and at a time of, wider global factors.
Interest rates have been so low for so long that they have had an impact on deposits. Globally, investors are withdrawing bank deposits and investing the money in alternatives which offer a greater return.
The uncertainty following Brexit will stir into action those who will always want to extrapolate a bigger malaise from these figures. I would not be surprised if the media asked whether these figures signalled a wider decline in Jersey's finance industry. It is a standard question but, as Warren Buffet says, in the business world, the rearview mirror is always clearer than the windshield.
I am not going to speculate on whether figures are going to rise or fall in the future; Jersey is affected by global influences and we are in a time of uncertainty. But I would say Jersey is a strong, stable, and well-regulated international finance centre which continues to attract business from around the world.
As an international finance centre, business in Jersey is always going to be affected by international pressures such as Brexit, low interest rates, and weakening exchange rates. Whilst these factors may be reflected in short-term figures, that should in no way be seen as an indication that Jersey’s banking industry is in decline. Jersey’s banking model is stable and diversified, and we are in the process of helping the sector to adapt to technological and regulatory changes. Banking remains the powerhouse of Jersey’s economy, accounting for £900m (or 50%) of Jersey’s GVA in 2015.
At the same time as the fall in banking deposits, there has been a slight decline in the net asset value of funds business this quarter compared to the previous one. But, at £223 billion, it remains £5 billion higher than at the end of the same quarter a year ago, an indication of the strength and stability of our funds offering.
Indeed, we have seen the benefit of this renewed interest in alternative investments in Jersey with a Brexit-driven surge in real estate investment which has contributed to total assets under administration in the jurisdiction of well over £1trn.
So can Jersey's finance industry be said to be in decline just because of these figures? There is a lot of data about a highly complex industry and a measurement that I think is a better indication of the overall health of the industry is employment.
Firms won’t hold or grow their headcount unless they are confident of being able to sustain current business levels or capture new business growth so, bearing in mind Mr Buffet’s comment, a better indicator of future trends might lie in the employment figures rather than the banking statistics. Employment within the industry is nearing an all-time high and, while there has been a shift and staff who previously worked in banking have been redeployed in other areas, it is still positive. The industry added more than 800 new jobs in 2015 and 2014, net of any reduction. In a survey we conducted in April 2016, our finance firms projected that they planned to grow jobs over the next three to five years, net of any planned reductions in headcount.
So while today's figures reflect the volatile nature of global markets, overall the industry sectors are holding up well in tough trading conditions.
Quarterly report for period ended 30 June 2016