Cypriot deposit holders may lose 60% of their cash

The bad news just keeps getting worse for holders of cash in Cypriot banks.  First they were told that they would lose 9.9% of their deposits, then 20%, then 40% and now the figure has risen to potentially 60% or even more.

Bank of Cyprus depositors with more than 100,000 euros will see 37.5% of their holdings over 100,000 euros converted into shares, and a further 22.5% invested in a fund attracting no interest, which may be subject to further write-offs at the discretion of officials.

The remaining 40% of cash deposits will continue notionally to attract interest - but it will only be paid if the bank performs well.  At present, this seems a dim and distant prospect, and fears remain that there will be a run on the banks as and when the current draconian currency controls are lifted.

Cypriot officials have yet to release details of what big depositors at Laiki - the country's second largest bank - could face, but it is feared that they may see even larger sums being lost.  Laiki will eventually be absorbed into the Bank of Cyprus.

New Caymanian law enables jobs to be restricted to Caymanians only

New legislation in Cayman means that in future some job categories could be reserved for Caymanians only as the legislation allows politicians to set quotas limiting work permits for certain professions. 

Although it has not yet been agreed which roles will be restricted, hotel concierges, human resources managers and trainee accountants are all expected to be amongst the restricted categories, and therefore financial services firms are likely to be affected by the changes.

Key employees, non-Caymanian permanent residents and spouses of Caymanians will be excluded from restrictions. 

The new law has been drafted in response to wide-spread criticism in the Island that there are insufficient opportunities for locals to establish careers, with too many good positions being given to immigrants (there are currently 20,396 people on work permits in Cayman).  Although Cayman has for a long time had fairly strict immigration and work permit controls Employment Minister Rolston Anglin explained that the new law would allow Cabinet to set policy on immigration rather than leaving it to immigration officers to handle on a case-by-case basis, adding that the quota could be zero for some professions.  

The new law is not without its critics. Alden McLaughlin, leader of the opposition said it would not help good quality create jobs for Caymanians and could end up having negative repercussions.  

There is a difficult balance to be struck.  If the zero quota roles are all low end, poorly paid jobs then this is hardly doing much to enhance the lives of Caymanians.  If, on the other hand, there are quotas imposed for more professional and senior roles, then the politicians are likely to face the ire of the big firms who will not take kindly to any attempts to dictate who they can hire, and will make the Cayman Islands a less attractive place to do business.

Law firms, banks and trust companies have all in the past been criticised for not employing sufficient numbers of locals, and relying too heavily on bringing staff in from overseas, and it is hard to deny the fact that there are relatively few locals amongst their most senior ranks.  But in my view the issue of why Caymanians are under-represented in senior roles is a complex one, and should not be dismissed as a simple issue of racism or prejudice against Islanders.  Why would any employer in their right mind want to employ an overseas person on an expensive expat package (and face the problem that they may decide after 6 months that they are not suited to life in a small Island, and leave) if an equally good candidate was available locally? 

The fact that these businesses are still so reliant on expats seems to me to be because of a number of issues.  Firstly, there are not sufficient numbers of people with the right quality of education and work experience in Cayman to rival many of those who have been educated and worked in some of the World’s leading centres – this is a problem faced by all small locations and there are no quick fixes.  It is too simple to say that if a law firm is advertising a job for a newly qualified lawyer, and there is a newly qualified Caymanian lawyer available that they will necessarily have the same quality of education or experience.  Solving the problem involves a huge and long term commitment to improving the quality of local education, and facilitating young Islanders in getting top quality experience at universities and in the early stages of their careers.  Realistically, this may mean creating opportunities for them to leave Cayman for a period of training, before returning home. 

Secondly, there are firms in Cayman who will tell you privately that they have suffered at the hands of a small number of individuals who have completely abused their local status – I have personally witnessed examples where local employees have simply decided to take entirely unannounced and unauthorised holidays at will, saying that they can’t be sacked because they will create difficulties with the immigration board for future work permits.  Although few of the big firms working in the Island would care to publicly admit it, most have on board a small number of employees who are lazy and careless.  The difference is that they can sack the immigrants who display these traits, whereas it is a political gamble to do so for locals, for fear that the firms will be seem to be discriminating against locals.  The consequence is that a small number of Caymanians have created a bad image which is entirely undeserved by the many bright, hard-working and committed Islanders who have just as much right (and potential) as anyone else to aspire to a top level career. 

So what do I think should be done?  I don’t think the current legislation is the right way to go about things.  Instead, at least so far as the financial services sector is concerned, I would suggest that the key steps are:

·         the quality of Caymanian education needs to be improved – there are no short cuts here; it requires a long term investment by the government (not easy at a time when money is tight);

·          the government should provide financial assistance (in the form of loans) to enable aspiring students to undertake degrees and professional training courses both within Cayman and at highly rated overseas educational establishments;

·          international firms with a presence in Cayman should be encouraged to offer vacation schemes and paid internships specifically to Caymanians and to allow Caymanian trainees to get overseas experience, through office secondments;

·         if there are appropriately qualified locals persons who apply for a job, firms should be obliged to ensure that at least one of them is shortlisted for interview;

·         firms should be able to follow exactly the same disciplinary proceedings for locals as for non-locals – if any employee is dismissed without good cause then they should have a forum for redress in a local employment tribunal entirely separate from immigration boards and work permit decisions.

These are not issues which Cayman wrestles with alone.  In many of the offshore centres you will find similar debates going on about how to ensure locals get a higher proportion of the top jobs.  The fact is that small places find it difficult to compete in secondary and tertiary education with large centres, simply because of demographics, and nor can they provide the same range of early-career work experience.  Solving that problem requires a long term cooperation between businesses and government – not a polarised debate, or legislation which is likely to lead to resentment by forcing candidates on businesses.

What does the Cypriot bailout mean for other Eurozone countries?

As we await the detail from Cyprus of exactly what the practical consequences will be of the bailout deal (in particular, confirmation of how much large deposit holders in the different Cypriot banks will lose, and how capital controls will be imposed to avoid a flight of cash from the Island's banks) it is perhaps a good time to consider what the wider implications might be for other EU countries and in particular the key financial centres within the Eurozone.

The Cypriot bailout was quite remarkable because it seemed to mark a shift away from a situation where tax payers assume the responsibility for bailing out troubled banks, to one where large depositors and bond holders bear the brunt when a bank fails.  There was undoubtedly a lot of political posturing at play in what happened in Cyprus - the fact that so many of the Island's large deposit holders were Russians rather than Europeans clearly had an impact on decision making, particularly in Germany where an election looms and there is great public antipathy towards the idea of German tax payer's money being used to ensure that Russians crooks (as they tend to be portrayed in the German press) are not left out of pocket. Had the majority of large deposit holders been EU residents then I am sure we would have seen a lot more angst about whether it was appropriate for them to have to shoulder the burden of the bank failures.  So the question is, does the Cypriot set a precedent or can it be viewed as a one off?

In a spectacularly ill-judged comment, Jeroen Dijsselbloem, the Dutch finance minister, set hares running earlier this week by suggesting that what had happened in Cyprus could be used as a template for any further bailouts that might be required in the future in the Eurozone.  It does not take a rocket scientist to see how even a suggestion that large depositors in other jurisdictions could face similarly draconian measures would lead to a flight of capital out of the struggling PIGS and into safer havens, exacerbating an already difficult situation. It was therefore no surprise to see his statement rapidly followed by hasty retractions, and statements saying that Cyprus was a special case and did not set a precedent. But is is really true?

What made Cyprus different from Spain or Greece or Portugal seems to me to be down to two issues - firstly that fact that it is a much smaller country with a relatively small population in European terms, and secondly that it has a banking sector which is very large relative to the country's GDP, as a consequence of its tax haven status.  But aren't there indeed other jurisdictions within the Eurozone which also have disproportionately large banking sectors because of attractive tax regimes? And aren't some of these also relatively small countries? Malta, for example, has a banking sector which is approximately 8 times its annual GDP whilst Luxembourg's is closer to 20 times its GDP, and both are relatively small in population terms.  In what way are they really different from Cyprus?  Are we now reaching a position where bailouts for countries with big international financial services industries will be dealt with on a different basis from those which do not have this?  Or where only depositors in small countries will have to bear the losses of bank failures? Can the EU really afford to make such judgements, when the whole point of the EU was to have a single unified market? It seems to me that what has happened in Cyprus could prove to be extremely divisive amongst EU member states as the implications are worked through.

I am astonished that for the relatively small sums involved in a Cypriot bailout that the EU have put a big question mark over the stability of banking arrangements in so many Eurozone member states.

Jersey remains top offshore centre based on Global Financial Centres Index

Jersey has retained it's position as the top ranked offshore financial services centre for the 8th year in a row according to the latest Global Financial Centres Index.

Jersey sits in 28th place in the overall global rankings, which seek to measure the attractiveness of the worlds financial centres based on a variety of external measures and a large survey.

Guernsey is the second ranked offshore centre (in 31st place overall), followed by Cayman Islands (41st), Isle of Man (43rd), and BVI (47th).

Of the "quasi offshore" centres (those where much of the work comes from international clients located there due to beneficial tax regimes) the field is headed by Switzerland, with Zurich in 5th place overall, Geneva in 7th place, Luxembourg in 18th, Amsterdam in 34th and Dublin in 56th.

London kept its overall number 1 spot, despite the scandals it has weathered over the past couple of years, with New York in 2nd place ahead of Hong Kong and Singapore.

Cyprus bail-out agreed at the 11th hour

In the early hours of this morning a deal was finally thrashed out to save Cyprus from bankruptcy.  Although the details have yet to be fully announced it is understood that key proposals include the closing of the Island's second largest bank, Laiki.  Investors with less than euro 100,000 will be fully protected from loss, but larger deposit holders can expect to lose significant sums of money. It is not yet clear what the impact will be on large deposit holders in other banks.

It is understood that the deal does not require the approval of the Cypriot parliament as the losses to be suffered by deposit holders will not be in the form of a tax, unlike the controversial proposals unanimously rejected by its politicians last week.

Although Cypriots will undoubtedly be breathing a sigh of relief that their economy has been saved from bankruptcy at the eleventh hour, there will be ongoing repercussions from this episode.  Cypriots have been voicing a deep anger with the EU in general and with Germany in particular, over the hard line that they have taken on bailout conditions.  Feelings are running so high that a majority of Cypriots are now said to favour leaving the EU. Meanwhile, the Russians (who represent a significant proportion of the Island's major depositors and who will therefore bear the brunt of the cost of the bank restructuring) will doubtless be very angry, and have even been reported as threatening economic reprisals against Europe.

The Spaniards, Portuguese and Greeks will be watching their own bank deposits carefully over the coming days to see whether nervousness over the losses inflicted on deposit holders in Cyprus infects  those with savings in other troubled European economies. A flight of cash would be disastrous for those countries still struggling with the effects of a deep recession and high unemployment.

Cayman agrees to automatic exchange of information with UK

The Cayman Islands have announced that they will sign a Model 1 IGA with the US in order to facilitate FATCA compliance, and also that they intend to put an equivalent arrangement in place with the UK for automatic exchange of information.

In quick succession, the UK government have therefore ensured that 4 of the key Crown Dependencies and Overseas Territories with significant financial services businesses (Jersey, Guernsey, the Isle of Man and Cayman) have all committed to automatic information exchange.  Those territories will now be waiting to see how quickly the UK government presses rival financial centres to do likewise, to achieve a level playing field and avoid a flight of business to less regulated jurisdictions.  

McKeeva Bush Charged With Multiple Offences

McKeeva Bush, the former Cayman Premier, was charged yesterday with a number of offences including multiple counts of theft and misconduct in public office.  He was initially arrested in connection with these and other matters late last year, but only now have charges been brought.

The theft charges are believed to relate to misuse of a government credit card.

Although Bush continues as leader of the United Democratic Party, he was ousted as Premier following his arrest in December.  He strenuously denies any wrongdoing.

He has been bailed to appear in court on 12th April, some 6 weeks before the Cayman elections.

Whatever the outcome of the proceedings, this is undoubtedly unwelcome publicity for an Island which has been seeking to assure the world of its commitment to probity and good corporate governance.

Cyprus hangs by a thread

The financial future of Cyprus remains hanging by a thread tonight, after the country's Parliament last night emphatically rejected the proposed EU bailout which had been negotiated at the end of last week.

Today the Finance Minister flew to Moscow to ask the Russians to come to the rescue, but the meeting ended with no deal being reached and a planned press conference was cancelled.  Rumours abound of Gazprom having offered to resolve the tiny country's financial difficulties in return for exclusive rights to exploit its oil and gas reserves, but it is an invidious position for the country to be in, trying to negotiate a commercial deal of such importance when known to be hovering on the edge of bankruptcy.

Jersey agrees UK FATCA

Hot on the heels of the Isle of Man and Guernsey, Jersey has agreed to sign an automatic exchange of information agreement with the UK, after having secured special reporting arrangements for non-doms and a disclosure facility to enable UK tax payers who have undeclared money in the Island to regulate their affairs prior to the information exchange regime beginning.

Although practitioners remain worried about the costs of compliance and that the new regime will drive away entirely legitimate and good business from the Island to lower cost (and less regulated) jurisdictions, those in the industry hope that by having agreed to this route the UK will stop its relentless attacks on the Island's finance industry and support its involvement in appropriate tax mitigation and the free movement of capital. One of the early tests of this will be the UK's approach to renegotiating the existing Double Taxation Agreement, which it has committed to reconsider as part of the overall agreement with the Islands.

Guernsey agrees to "mini-FATCA" disclosure arrangement with UK

Following the Isle of Man’s agreement to implement a “mini-FATCA” tax disclosure agreement with the UK, it seems that Guernsey has decided to follow suit.

The UK has been seeking to implement automatic disclosure agreements with 3 key Crown Dependencies, Guernsey, Jersey and the Isle of Man, since last October as a quid pro quo for consenting to the Crown Dependencies signing an Intergovernmental Agreement (IGA) with the USA designed to simplify the reporting requirements for the US FATCA.  It is a moot point whether the UK has the power to block the Crown Dependencies signing the US IGA without the consent of the UK, but both sides have been trying to find a mutually acceptable solution without major conflict as there is an acceptance that in the current financial and political climate, the Islands need to be seen to be doing all they can to ensure that their beneficial tax arrangements are not being abused for tax evasion.

The key concern of the Crown Dependencies is that the UK choosing to impose reporting requirements only on the Crown Dependencies and not on other financial centres, will put them at a competitive disadvantage because of the costs of compliance, which will in turn lead to a loss of business. 

The Isle of Man was the first to agree to the UK’s demands for automatic disclosure, with Guernsey and Jersey taking the opportunity to try to secure some clarifications and benefits before committing themselves.  Guernsey’s agreement now leaves Jersey as the only jurisdiction yet to confirm its position.

It seems that Guernsey has indeed managed to secure changes to some of the aspects of the mini-FATCA arrangements which were causing the greatest concern.  In particular, the UK agreement will include alternative reporting arrangements for non-domiciled UK tax residents (non-doms) and a commitment  to negotiate a revised Double Taxation Agreement between the two countries.

The proposed arrangements between the UK and Guernsey are subject to the approval of the States of Guernsey later this year, but seem to be likely to be approved.

Guernsey's chief minister Peter Harwood, said: “The agreement that we are working towards with the UK will be consistent with our belief that Guernsey's long-term sustainable economic future is best served by safeguarding our position and reputation as a respected, well regulated, tax transparent jurisdiction. With such a UK agreement, automatic exchange under the EU Savings Directive and importantly an IGA arrangement with the US for FATCA now almost concluded, we believe Guernsey business will have both certainty and a competitive advantage.

Cypriots back-tracking on bank deposit tax for deposits of less than Euros 20,000

Under huge pressure from angry citizens, the Cypriot government has submitted a draft bill to its Parliament scrapping its proposed controversial levy for those with deposits of €20,000 or less.

There has been enormous anger that small savers were to be hit by the emergency levy, given that the EU has legislation in place designed to ensure that the cash of small depositors is protected in the event of a bank failure.

Since announcing the original bailout deal, Cyprus has faced calls from its central bank governor (aptly named Panicos!) and from Eurozone finance ministers to raise the exemption threshold up to €100,000, but to make good the consequent cash shortfall by increasing the levy on larger deposits.

It is understood that the draft bill does not raise the proposed levies of 6.75% on deposits between €20,000 and €100,000, and 9.9% on  deposits over €100,000 in order to balance the expected €400 million shortfall that the new exemption will cause.  Given that the Troika have made it clear that no further funding will be provided by them, it is not clear how this draft bill can lead to the successful bailout that the Cypriots so urgently need.

In the meantime, the Cypriot banks remain closed.

Cypriot bail out sparks fears of a run on the banks

The Cypriot government and the EU/IMF finally agreed the long awaited bail out package for Cyprus on Friday, but in hugely controversial fashion. In fact, so controversial that it is not beyond the realms of possibility that when put to the Cypriot parliament for approval tomorrow, they could actually reject the deal and opt instead to leave the Euro and face almost inevitable bankruptcy instead.

The main reason for the passionate opposition from some quarters to the deal which has been struck is that, after pressure from the Germans, an integral part of the bail out deal was agreement to impose a "levy" on all holders of bank accounts in the island, equivalent to 9.9% on accounts of more than €100,000 and 6.75% on accounts under that sum.  It is the first time that the EU have made what effectively amounts to a partial confiscation of cash deposits a condition of financial assistance, and there were immediate fears that it would lead not only to a run on Cypriot banks, but that the panic could spread to account holders in other countries suffering financial difficulties, such as Greece and Spain, sparking another wave of financial problems.

There had been rumours for some time that the EU was seeking to make deposit holders share some of the burden of the bail out, although the Cypriots fought hard to resist it, knowing that it would damage the Island's lucrative financial services sector. The official reasoning for the imposition of the levy was that it was required to keep any rescue package down to a sustainable size for the future, but it is also known that some EU politicians, and most vocally the Germans, feared a political backlash if they went ahead with a loan, leaving the many wealthy Russians who hold accounts in the territory protected and not contributing the rescue cost.  

The fact that larger account holders are facing a levy will not have come as a surprise to everyone, but there is real shock that small depositors are also being hit. The EU has depositor protection in place for account holders of less than €100,000 and it is not clear how this can be squared with the Cypriot deal.

It is a national holiday in Cyprus on Monday, and so nervous banks will have to wait until Tuesday to see what the impact will be within the Island.  Meanwhile, on Monday bankers in Greece, Spain and Portugal will be working hard to calm jittery customers who may fear that similar measures could be taken elsewhere in the future now the principle has been established.

Nautilus Trust acquires New World Trustees Limited

In a continuation of the trend of consolidation in trust companies, Jersey head-quartered Nautilus Trust Company Limited has acquired New World Trustees (Jersey) Limited. 
 
Nautilus was incorporated in 1999 and has grown from a team of two to 51 through organic growth and a series of small scale acquisitions under the leadership of Jason Cowleard.

New World Trustees was incorporated in 1983 and has been providing structuring solutions for its clients for 30 years. 

The combined business will comprise 65 employees.

Non-doms deserting the UK

Since the financial crisis, there have been cries from many quarters that wealthy people should be required to pay more tax.  Morally it is hard to argue that the rich should not share some of the burden of fixing the fiscal deficit through higher taxes, but the difficulty is that if you tax the wealthy too much they often have an option open to them which is simply not available to many of those of far more modest means – and that is simply to relocate to a lower tax jurisdiction.  Those in favour of higher taxes on the rich tend to dismiss this possibility as scare-mongering, saying that the wealthy choose to live in the UK for many more important reasons than tax, whilst those who make their living representing the affairs of the well-heeled sound dire warnings every time a tax increase is proposed.  It was therefore with interest that I read the results of a recent study by law firm Pinsent Masons (“PM”), to try and get a factual perspective on whether higher taxes do indeed cause the wealthy to leave.

And it seems that they do. According to the PM report, the number of UK registered non-domiciled individuals fell by 2,000 in 2012, and by 24,000 since an annual £30,000 non-dom levy was introduced by the UK government in 2008.  This represents a 17% drop in the number of non-doms in the UK since 2008 – a significant fall by any standards.

The introduction of the £30,000 levy (which rises to £50,000 for those who have been in the UK for 12 or more years) is one of a range of measures which have been introduced which are unpalatable to many non-doms, including a 50p top rate of income tax (albeit that this is to reduce to 45p this year), increases in CGT, increases in stamp duty on residential properties (and a clamp down on structures designed to reduce the stamp duty), and frequent public debate about the possibility of a “mansion tax”.

According to PM, together these represent an “increasingly hostile tax code” for high net worth individuals, which is undermining the Government’s efforts to attract more non-dom investment in UK businesses.

Jason Collins, Head of Tax at PM added: “Non-doms are more important to the UK economy now than ever before. They have huge spending power, invest in businesses and create jobs. They can’t do this if they aren’t here – and there are plenty of other countries competing to welcome them to their shores.”

Of course, the fact that 24,000 non-doms have departed UK shores may not be a bad thing if the various measures introduced to raise more tax from this grouping have lead to a balancing influx of tax receipts.  Trying to compute this is immensely complex, but PM point out that the non-dom levy has actually only been paid by less than 5% of non-domiciles in each year since it was introduced and last year generated a relatively paltry £168 million for the Treasury.  I suspect that the direct and indirect contributions to the Exchequer by the 24,000 non-doms who have departed since 2008 would be significantly greater than £168 million.

“The threat of the levy is driving high net worths away, but to make matters worse it is not even a significant revenue generator to make up for this,” said Collins.

And this sums up the problem with the current debate around taxation.  The UK government is increasingly taking decisions which are designed to appease an angry public who feel that the wealthy should contribute more in times of hardship.  But whilst the spin-doctors may love it, it is a pyrrhic victory if the net result is a further decline in tax receipts.

Ogier open Luxembourg trust company

In a move that will surprise few, Ogier Fiduciary Services has opened an office in Luxembourg.

Last year Ogier took the step of opening a law firm in the jurisdiction - something which none of the offshore law firms had done before, for fear that being seen to compete with the onshore firms from whom the offshore firms traditionally receive most of their work might result in a drop-off in referral work. Opening a fiduciary business was a natural progression, and is far less controversial, being a step that many of Ogier's competitors have already taken, as many trust companies seek to establish a multi-national footprint encompassing both traditional offshore locations and international financial centres with large double tax treaty networks.  

The new office will be headed by Paul Lawrence (who will be relocating from Jersey) and Michel Thill (formerly of BI-Invest Advisors SA) and will provide administration services to corporate, fund and private wealth companies.

CIMA revokes banking licence of HSBC Mexico's Cayman Branch

The Cayman Islands Monetary Authority (“CIMA”) has revoked HSBC Mexico’s banking license in Cayman following an investigation into the Cayman Islands Branch of HSBC Mexico SA.

Four months ago the bank’s parent company admitted the money laundering at the Cayman registered subsidiary.

According to a statement released by CIMA on 27^th February, they have “concluded that the Cayman Islands Branch of the company is conducting business in a manner detrimental to the public interest, the interest of its depositors or of the beneficiaries of any trust or other creditors and that the direction and management of its business has not been conducted in a fit and proper manner”.

The scandal surrounding the Mexican based branch of HSBC has already led to the Bank agreeing to  pay $1.92 billion to settle US money laundering allegations. A US Senate committee report had revealed that tens of thousands were poorly regulated, and had possible links to organized crime.  An estimated 15% of the accounts had no KYC information at all.

So what are the lessons to be learned here?  Firstly, the finger of blame for KYC lapses is often pointed at smaller businesses, but this shows that there are still very large organisations which have a lot of work to do to get their house in order.   In some ways, it can be easier in very large businesses for the leaders to become divorced from what is going on at the coal face. We should not necessarily assume that small is bad, and big is good – best practice, and worst, comes in all shapes and sizes.

Secondly, it shows that no business is big enough to be exempt from draconian action if it fails in its KYC obligations.  There was a time when regulators would have been reluctant to tackle big businesses with household names for fear of damaging the jurisdiction’s reputation.  It seems those days have gone.

Jersey posts strong Q4 2012 performance

Figures released yesterday by Jersey Finance show that the Island's finance industry finished 2012 on an upbeat note, seeing increases in bank deposits and funds under administration.

Bank deposits rose 2.3% in Q4, up to £152.1bn from £147.8bn in the previous quarter.

The total net asset value of funds under administration rose to £192.8bn from £189.5bn at the end of the third quarter.  Over 2012 as a whole, the value of funds under administration has risen by approximately £3 billion, with the specialist fund sector being particularly buoyant.

STM focus on Pensions and Life Products as core Trust and Company business comes under pressure

STM Group, the AIM-listed fiduciary services business head-quartered in Gibraltar, has seen a sharp increase in losses in 2012 despite revenue growing by 18%, after it took a one-off amortisation hit of £3.8m.

The £3.8m charge resulted from the amortisation of the Zenith business acquired by the company.  EBITDA rose from £700,000 to £1,000,000.

However, apart from the headline figures, the most interesting aspect of the accounts is to look at the big changes that have occurred in from where STM derives its revenues, as it is one of only a handful of fiduciary businesses to publicly release trading figures. 

Its traditional trust and corporate services business (based principally in Gibraltar and Jersey) has declined (down from £7.5 million in 2011 to £6.5 million in 2012) and is expected to decline further for the foreseeable future, given the continuing difficult economic climate and the public debate about the morality of tax avoidance.  Whereas in 2011 the CTS business represented 77% of the group income, this has declined sharply to 55%.  The CTS sector performance was further hampered in 2012 by problems that the company had with the Jersey regulator, resolution of which required both management changes and a considerable focus on bringing the business up to the expected standards. 

STM is seeking to shore up its CTS revenues for the future by shifting its traditional focus away from the UK non-dom market and launching specific products designed for the Japanese, South African and Belgian markets.  It has also opened an office in Cyprus, which is aiming to funnel business from Eastern and Central Europe to the Jersey office.

By contrast to the CTS business, pensions were a star performer in 2012, with revenues from that division rising from £600,000 in 2011 to £3.6 million in 2012, largely thanks to the Maltese QROPs product.  STM was a pioneer in the development of QROPS and Malta has benefited from having many products remaining on HMRC’s approved list (unlike Guernsey, where approved status was removed from most QROPS last year).

STM Life, the division of the company which provides life insurance bond investment 'wrappers' has yet to deliver material revenue contributions to the Group, but STM chairman Julian Telling has high hopes for the future of that business, and released a bullish statement saying that he was confident that the company would return to profitability “in the near term”.

Despite his bullish statements, STM shares fell by 1p or 3.33% to 29p following release of the figures,  putting them 20% below their 52-week high of 36.25p, reached in May of last year, and a long way from the 73.5p high point achieved in mid-November 2007.

New Cypriot Government Making Progress on Bail-Out

Cyprus has moved a step closer to securing a €17.5 billion bailout from the Troika after it agreed on Monday to an independent audit of its banks to assess implementation of anti-money-laundering rules.  The audit was designed to address concerns raised by some EU members that the Island may be being used as a haven for money laundering particularly for wealthy Russians.  Despite strong denials from the Cypriots, the issue has been seen until now as a political stumbling block to securing a rescue package, with the Germans in particular voicing concerns about hard pressed EU members being asked to bail out a territory so that wealthy Russians’ bank deposits are protected.

Since the newly elected centre-right President, Nikos Anastasiades, took over on 1^st March from the former communist-led government, there has been positive progress towards securing a debt deal – something which has been rumbling on since last June, but which is now becoming urgent as the tiny country comes close to running out of money. 

However, there are still some significant issues to address. The IMF, one of the potential bailout lenders, is concerned that a conventional rescue would push the Cypriot debt-to-GDP ratio up to an unsustainable level of around 140% and as a consequence there is pressure for depositors in Cyprus to help pay for the rescue, by a process known as a "bail-in".  The Cypriots remain strongly opposed to this, fearing that it could spark a withdrawal of funds from the country, making its economic situation worse. 

However, Anastasiades is believed to be more open to the idea of a sale of some publicly owned assets to raise funds – something which was opposed by his predecessor.

This will doubtless go down to the wire, but the tone of messages coming from both camps has notably improved since the elections.