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News : Irish Last Updated: Apr 24, 2009 - 5:31:05 PM


Citibank Europe's head says Dublin's International Financial Services Centre faces big potential job losses
By Finfacts Team
Oct 23, 2008 - 8:04:17 AM

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Citigroup employs over 2,000 in Ireland - - It and its predecessors have had a presence in Ireland since 1965. During the 1960’s, the First National City Bank, a US bank, undertook rapid expansion and opened up new overseas offices in 10 countries including Ireland. The bank had already been operating in Europe since 1902.

The bank opened its Dublin office on 6th May 1965 at 1 Dawson Street, Dublin 2 (now a bookshop). The bank moved very shortly afterwards to 71 Stephen’s Green, Dublin 2 in 1967 where it remained until 1993. During the intervening years, the bank operated a full service corporate and commercial branch. In 1976 the bank changed its name to Citibank, N.A.

With the advent of the International Financial Services Centre in 1987, the bank took a strategic decision to relocate to this new development. In 1993, the bank and its staff of 80 moved to IFSC House at Custom House Quay.

Shortly afterwards in 1996, due to the prevalence of favourable economic conditions, the bank established a Dublin Service Centre to centralise cash management and securities services operations which led to a tenfold increase in employee numbers. This was a major expansion of the Irish operation which now required a new premises to house all the Citibank activities. The bank was operating out of 5 different locations and in 1998 started construction on a 375,000 sq ft building in the 12-acre extension of the IFSC. This was the largest single office block building to be constructed in Dublin for over 20 years at the time.

Citibank Europe's Chief Executive Aidan Brady said on Wednesday that Dublin's International Financial Services Centre (IFSC) faces big potential job losses.

Brady was speaking at the Irish Banking Federation national conference and said that  massive cost reductions could be on the way at the centre and businesses could move their operations to lower-cost locations.

Up to 25,000 people are employed at the IFSC and the ongoing global financial turmoil will have an impact on operations there.

There are over 9,000 employed in fund administration in Ireland and a big shakeout of the sector is currently underway in the US.

Financials as a percentage of S&P 500 market capitalisation rose from 8% in 1990 to almost 25% at the height of the housing boom and in recent years, the cut of the Fed's federal funds rate to 1% facilitated the out-of-control asset boom.

With Washington calling the shots in the foreseeable future, the industry will surely shrink as the global economy gradually recovers from the downturn.

The Financial Times chief economics commentator Martin Wolf wrote on Wednesday:"Between 1980 and 2007, the ratio of US gross financial debt to gross domestic product – a measure of the sector’s leverage – jumped from 21 per cent to 116 per cent. Today, as a result, the arteries are clogged with bad debt.

Moreover, while the US government (and those of other western countries) are committed to saving the core banking system, the non-bank financial system, including the hedge-fund sector, looks set to implode as financing dries up, with inevitable forced sales of financial assets and further insolvencies.

This is the reality behind the euphemism, “deleveraging”. This occurs via mass bankruptcy, unless bad private debt is shifted on to the public sector’s balance sheet. “Debt destruction” is a better name. In the US and elsewhere, asset prices, particularly of housing, also continue to fall. Who is going to borrow to purchase such assets? What lender would use such assets as collateral, unless they are protected by generous equity cushions? The credit mechanism is broken. This must be so when spreads on riskier credits are shooting up. If banks cannot borrow easily, few can."

Aidan Brady said Ireland would need to put a well-crafted case to the new president of America to convince him not to tax US firms on their worldwide incomes as this would be bad news for Ireland.

“I cannot tell you how critical this is,”he said.

Urgent action is also needed at the centre to plan for the new financial world that is unfolding, he said.

“It needs to embark on an intense marketing campaign and broaden its product range,” said Brady.

Senator Barack Obama says that the US tax system should not promote the exporting of jobs.

The US Treasury Department has already issued a request to the Department of Finance to renegotiate a 1997 agreement on the tax status of US multinationals in Ireland.

Ireland operates as a tax haven for some multinationals such as drugs giant Pfizer.

As no tax applies to patent income, US companies locate patents in Ireland to route revenues from other overseas locations. The practice has raised concerns in the US as much of the intellectual capital would have originated there.

Others such as Microsoft, pay Irish tax on their income from other overseas units, that is routed to Ireland.

In November 2005, The Wall Street Journal wrote that "a law firm's office on a quiet downtown street [in Dublin, Ireland ] houses an obscure subsidiary of Microsoft Corp. that helps the computer giant shave at least $500 million from its annual tax bill. The four-year-old subsidiary, Round Island One Ltd., has a thin roster of employees but controls more than $16 billion in Microsoft assets. Virtually unknown in Ireland, on paper it has quickly become one of the country's biggest companies, with gross profits of nearly $9 billion in 2004."

Microsoft's Flat Island Company made a profit of $802.4 million in 2004 on sales of $2 billion, but paid no tax. It issues licences for software in Europe, the Middle East and Africa.

The two Microsoft companies were subsequently converted to unlimited status and no recent financial data is available but in 2004, Microsoft paid €300 million in corporation tax on its Round Island One rerouted foreign income to the Irish Exchequer.

There is much to lose from a change in the current system

How US Multinationals Profit from Tax Havens - Ireland top Location for US Multinationals' Profits

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