BOUTIQUES VS. TOO BIG TO CARE:WHERE HAVE ALL THE BIG ONES GONE

26th April 2016

Boutiques Vs. Too Big to Care: Where Have All the Big Ones Gone?

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Agenda:

Deltec Bank & Trust Limited

Global Economic Changes

International Initiatives

Institutional Trust Companies – Scaling Back?

Growth/Advantages of Boutique Trust Companies

Our Group

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Established in 1959, Deltec is the oldest private bank and trust group in The Bahamas under continuous ownership.

Deltec is an independent full-service financial services group with a wealth planning and investment platform that delivers bespoke solutions to meet our clients’ unique needs. Our commitment to delivering innovative solutions and providing the highest quality client service has defined who we are for 70 years.

Our top-ranked team has one focus: enhancing client wealth.

The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, Deltec Investment Advisers Limited, Deltec Securities Ltd. And Long Cay Captive Management.

Deltec remains independently owned by a core group of clients and employees.

Our History

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Deltec was initially established in 1946 in Brazil when Clarence J. Dauphinot, Jr. and associates, Earl Elrick and Angus Littlejohn, moved to Brazil to explore banking and direct investment opportunities. The first initial of each last name forms the DEL in Deltec.

Attracted to the safety and security offered by The Bahamas, the founders established a banking presence in Nassau in 1959.

Deltec’s shareholders, in the early days, included a number of prominent U.S. investment banks and European financial institutions, each of whom had a small shareholding to express their interest in the financing activities of the Deltec Group. Over the ensuing decades, Deltec forged its reputation as an innovator in structuring solutions and investment opportunities.

Global Economic Changes

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The Greatest Monetary Change in a Decade

Interest rates have started to and will continue to rise in the US; this decreases global USD liquidity and creates a shortage of USD outside the US

An increasing record of international corporate debt is in USD so a shortage in USD liquidity means that they cannot pay their debts

The Greatest Capital Investment Change in Two Decades

Due to high liquidity firms did not reinvest

Pending rising interest rates makes it more difficult to benefit from share buy backs or paying out dividends

Companies are going to have to reinvest in their own companies in order to maintain profitability

The Greatest Asset Allocation Change in Three Decades

The 35 year bull market is over for fixed income as rates rise

Assets once regarded as safe assets are now considered high risk

Times of great economic change mean greater upheaval and uncertainty; banks retrench both geographically and in terms of risk

Global Economic Changes

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Bailouts – Not just corporate anymore

Country Bailouts – Cyprus and Greece

Systemic challenge for Governments to meet their obligations and balance budgets, yearning to redistribute wealth through taxation to meet welfare and social security bills

Focus on corporate and individual tax planning and the IFCs in which said planning is undertaken

Too much taxation drives capital and jobs away - balancing act

International Initiatives

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1. OECD “Report on Harmful tax practices in the form of harmful preferential tax regimes, demand for increased transparency”:

- “Tax crime is a serious offence, and a predicate offense to money laundering. It deprives governments of the resources they need to fund public services and is a source of unacceptable inequality among citizens. With progress towards transparency, governments will be better equipped to collect the taxes but also pass structural reforms that will enable them to better tax capital income” (G20 Finance Ministries)

2. The FATF Recommendations, the international anti-money laundering and combating the financing of terrorism and proliferation (AML/CFT) standards, and the FATF Methodology to assess the effectiveness of (AML/CFT) systems. Create an effective system to combat money laundering and terrorist financing

3. Global Forum on Transparency and Exchange of Information for Tax Purposes (2009)

4. Tax Information Exchange Agreements – TIEA

5. Report of Foreign Bank and Financial Accounts – FBAR

International Initiatives

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5. Automatic Exchange of Information – AEOI

6. Common Reporting Standard – CRS (New blacklisting criteria to be published by July)

7. Base Erosion and Profit Shifting – BEPS US amendments on inversions

8. G5 – automatic exchange on beneficial ownership of companies and trusts (France, Germany, Italy, Spain and UK) to remove the veil of secrecy under which criminals operate

9. Use the OECD’s 2011 Oslo Dialogue to improve access to beneficial ownership information, and take action against those seeking to conceal it

International Initiatives

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The Vehicle of discussion or deliverer of directives

The OECD’s Oslo Dialogue framework, established in 2011 to promote a whole of government approach to tackling tax crime as well as other financial crimes, is uniquely positioned for this work, in particular as relates to improving the monitoring of professional enablers and facilitators. It brings together senior policy makers and experts from different disciplines and authorities, including tax and customs administrations, anti-corruption and anti-money laundering authorities, police and law enforcement agencies, public prosecutors, development agencies and international organizations', who together share responsibility for combating financial crime in all its forms. Since its creation, the work of the Oslo Dialogue has significantly improved the co-operation between government agencies in tackling tax and other financial crime, including through the establishment of a dedicated training academy. (G20 Finance Ministries)

Institutional Trust Companies – Scaling Back?

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Realignment within international operations

Achieve sustainable controlled growth and profitable scale in their priority markets

Focus on key onshore markets and exit IFC’s

Lower profits due to increased regulation FATCA and AML controls, placed additional costs on institutional banks for cross border business

Risk Management – risk vs. reward i.e., core vs. non core business lines

RBC, CIBC & Scotiabank - Canadian Banks that have reduced presence in Caribbean IFCs

HSBC, Coutts, Julius Bar – sold off their trust business

Institutional Trust Companies – Scaling Back?

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Basel III – Need to free up balance sheets to meet strict regulatory capital requirements

2014 McKinsey report fund industry profits rose 10% but costs grew 44%

Customer Service – An expense that cannot be justified in IFC’s

Dodd Frank Regulations – US banks encouraged to concentrate on core services, maintain sufficient capital ratios

Institutional banks & trust companies – “for every $1 or revenue $2 are spent on compliance”

All time high amounts of fines paid by Institutions

Institutional Trust Companies – Scaling Back?

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All time high forfeits/fines for the financial crisis and assisting in tax evasion means banks need to consider their products and markets very carefully:

*Source: The Wall Street Journal

INSTITUTION FORFEITS/FINE

Bank of America $65.6 B

JP Morgan $42.4 B

Lloyds $26.6 B

RBS $16.7 B

Barclays $16.5 B

Bank of America $8.5 B

BNP Paribas $8.0 B

UBS $7.4 B

Credit Suisse $4.8 B

HSBC $1.9 B

Boutique Trust Companies in IFC’s - Advantages

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Majority are located in stable, well-regulated and tax neutral jurisdictions

Privately owned - Taking the long-term view in all aspects of business leads to organizational stability and client satisfaction

Alignment of interests – Owners, employees and clients invest side by side

Highly personalized service – Specialize in delivering bespoke products and services to meet each client’s unique needs

Conservative balance sheet – No debt, no proprietary trading, no commercial loans

More personalized service

Less conflicts of interest in trying to only promote own services/investments

Independence

Lower staff turnover

Boutique Trust Companies in IFC’s - Advantages

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Depth of specialized professionals in the Private Client/Wealth Management field

Institutional service to private clients

Less bureaucracy in service offering

Versatility in product offering

Remain true to their core business

Paul Winder

Contact

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Head of Fiduciary Products and Markets+1 242 302 4178+1 242 376 1382pwinder@deltecbank.com