Bahamas: Best of Both Worlds

With a base in both Barbados and The Bahamas, Oceanic Bank and Trust Group sees these two diverse operations as not competing but compatible

At a recent senior management strategy meeting Oceanic Bank and Trust set itself the goal of becoming ‘The premier provider of wealth management solutions from the Caribbean to a global client base’. An ambitious plan and no easy task, especially considering the strength in depth of the private banking industry in the Caribbean. So how does Oceanic accomplish such a goal?

Put rather simplistically, there are arguably a number of key drivers that will distinguish one operation from another in an increasingly competitive wealth management environment – solid international structure, progressive management, creative solutions and, perhaps most importantly of all, a top-class service ethic.

Unfortunately, every private bank rather misleadingly claims these as its creed, and therefore sifting the wheat from the chaff is no easy task. It is therefore interesting to note that Oceanic Bank and Trust, the Bahamian-born and based private bank, presents a more human and realistic ethos: "We see our essential and enduring qualities to be: fairness, loyalty and respect in all relationships; uncompromised quality; innovative spirit; enjoyment in what we do; principled and with family values," says Bruce Bell, its Nassau-based managing director.

"I appreciate that even this may seem rather clichéd today but at Oceanic we are determined to ‘walk the talk’," he adds. "I am a great believer that ‘people do business with people’ and that for an enduring relationship, clients must be comfortable with our culture."

Moreover, when describing this ‘culture’ the Oceanic management uses terms such as ‘reality-check’ and ‘compliant and defensible’ – from this, it would seem, Oceanic is an institution that is aware of the new parameters under which the international private banking world is now operating. International initiatives have created an environment that defines and clarifies the strengths and weaknesses of a low-profile industry. As the eyes of professional advisors, government bodies, and both private and corporate clients become more intensified on both the jurisdictions and the banks that operate from them, a flight to quality should result, separating the men from the boys.

Nonetheless, Oceanic is sure of its credentials, and Bell is firmly of the belief that the business is going in the direction of high margin, high quality and legitimate activities and away from low margin and poor quality. "This will mean the loss of many industry players, consolidation and ultimately a strengthening of the financial services industry. Oceanic is committed to being one of the strong survivors of the changing environment."

"We are not in the "hide and seek" business - everything we do is compliant and defensible," he continues. "The majority of the legislative and regulatory changes that are happening have had no effect on us because they are simply codifying the practices we have been following for years." Thus despite the efforts of bodies such as OECD, FSF and the IRS, Oceanic has not seen any diminishment in the appetite of private clients to use jurisdictions such as The Bahamas and Barbados, in fact stating it has found "the opposite".

The management put this increase in demand down to a number of key factors which they delineated as: Firstly, knowledge - a lot of people were totally unaware until OECD came along that high net worth individuals could manage their personal affairs on a tax free basis in jurisdictions such as The Bahamas and Barbados. Secondly, the transition of trillions of dollars of inherited wealth from a generation who were keen savers on to a generation that is well educated; well employed; and, frankly, do not need the money. Many have thus become custodians of these funds for future generations, using tax-efficient structures in jurisdictions.

The third factor is that the world has become a much smaller place. The internationally wealthy are part of a global community- the parents might live in Canada; educate their children in the US; and have a home in Europe. The whole process is accelerating and as a consequence, there is an ever-increasing amount of planning that goes into today’s global family and how best to manage their wealth using the tax neutral platforms available through offshore centres. Lastly, it is becoming ever more popular for people to join their money, and The Bahamas and Barbados are clearly very pleasant places to live.

"In our business, there is no substitute for the face to face meeting with clients and intermediaries and senior management are constantly making client relationship management trips to the US, Canada, UK and the Far East," states Ken Clowes, Chief Operating Officer. Oceanic relationship building strategy is focused on creating a secure web of contacts and intermediaries who trust Oceanic to provide quality services, which are complementary to those of the intermediary.

Central to Oceanic’s approach to developing secure client relationships is through establishing an equally close relationship with the client’s professional advisers. Clowes explains that Oceanic only seeks to do business with clients that have been referred to it by highly reputable professional intermediaries who in turn have been tried and tested over the years. In turn the business that flows from these intermediaries is clients who have already been domestically advised. This successful approach provides Oceanic with another essential layer of due diligence "that is central to effective cross border client management."

When Oceanic acquired Barbados-based St Michael Trust Corp in July of 2002 it was a dynamic move which emphasised the Group’s dedication to pan-Caribbean expansion and the establishment of a global client base. The move was both internally and externally driven. While clients and intermediaries had requested a Barbados solution to their planning, the group had been attracted to Barbados for some time, recognising that a foothold in two different jurisdictions would place it in a unique position to expand its range of services and diversify its client base.

"Two years ago we began in earnest to establish our own Barbados based Domestic Trust Licence in order to be able to provide treaty vehicles," says Bell. "We studied the jurisdiction and the premier service providers. PwC and E&Y came out on top and, like most decisions, we went where we already had personal relationships, which was with PwC. We knew and had great respect for Wayne Fields, one of the senior partners and Jim Knott, General Manager."

He adds that perhaps what first attracted Oceanic to Barbados was the dogged determination exhibited by Prime Minister Arthur and his Government in 2000 at the time the OECD Harmful Tax Initiative Report was issued classifying Barbados, and many others, as a tax haven. This was clearly wrong in that unlike the vast majority of offshore financial centres, Barbados is in fact a high-tax jurisdiction, with an Income Tax Act dating from its British colonial days and tax rates rising to 40 per cent. The Government was ultimately successful in convincing OECD and this resulted in the removal of the onerous requirements previously stipulated.

The Prime Minister has now developed a front line regional role through his involvement with the International Tax and Investment Organisation. "We have been very impressed by the close co-operation that has been developed between Government and the private sector – ‘Tell us what financial tools you require and we will pass the facilitating legislation.’ Recent examples of this are legislation on e-commerce (and the current plans to deregulate the telecommunications industry), segregated accounts and segregated cells, foundations, and mutual funds. This ‘can do’ approach to business is totally in synch with Oceanic’s own business culture and we are very much looking forward to playing our role in redefining the Barbadian financial services landscape," says David Barron, managing director of Oceanic’s London office.

Another attraction of Barbados is its status as signatory to several worldwide tax treaties. With the shift to universal regulation, there is a consequent change from a climate of secrecy to transparency, and Oceanic recognises the need for offshore banks to pursue initiatives with tax treaty jurisdictions in order to better meet client needs.

Barbados also has excellent resources of trained and motivated staff. This has resulted in the development of close working relationships between clients and their wealth management service providers. "I cannot overemphasise the importance of the ‘people-factor’ in our business," says Knott. So far Bell states he has found the Barbados experience to be "highly positive. In our business preservation of our reputation is sacrosanct and we are convinced that our aspirations to become a premier provider of wealth management solutions will only be enhanced by being represented in a premier jurisdiction such as Barbados."

Having operations in both a zero tax jurisdiction and a tax treaty jurisdiction places Oceanic in a strong position to expand its client base, and provide different and complementary products, getting the best of both worlds, and offering region-wide solutions. The response of established clients of St Michael’s to the acquisition of the business by Oceanic has been extremely positive. Oceanic has been active in establishing a good relationship with them and their professional intermediaries from the outset, through face-to-face meetings and examination of their product needs. Interestingly, many of the professional intermediaries were already known to Oceanic through their Bahamian activities and the unanimous message from them was highly supportive of this acquisition initiative.

"As providers of wealth management solutions, trust administration represents a substantial part of our business and the fact that Barbados offers a privileged tax regime for trusts established by non-residents, was a major "selling point" and potential differentiator for us." says Bell.

Oceanic is now seeing the rewards of its commitment to diversifying its offerings. "Amongst the most common mistakes made by commercial banks is having too great a concentration of assets in one industry sector or become too focused on one market," says Bell. "The Barbados acquisition has changed our risk profile quite considerably in that our ‘offering’ has become much more diversified – more jurisdictions; more products; more cross selling opportunities; more technical expertise. Essentially, we are moving to an a la carte menu of wealth management solutions."

Although the Bahamas and Barbados are seen as having different agendas and working environments, Oceanic does not see them as competing but offering different programmes and the acquisition of St Michael Trust Corp now enables the group to offer new products, while supplying the full services of a private bank, enhancing value to the client. Barron adds: "We could be accused of hedging our bets with the two centres butI consider that we have backed two winners and are dealing with the premier centres." While The Bahamas and Barbados centres will continue to operate independently, substantial synergies have been identified and savings projected in respect of back office activities.

Oceanic is now seeking to expand its presence in Barbados. "To survive in business today, there must be critical mass and it is for this reason that we are seeking to grow our presence in Barbados either through acquisition or organically. There can be no greater testimony to our commitment to the market than that," says Bell.

"Barbados has a very strong insurance infrastructure," says Knott, "and captive insurance vehicles are very predominant here – this is definitely an area we are going to actively pursue. We are hoping to provide more of Oceanic’s investment services to St Michael’s clients in Barbados – some of it in traditional investments, equities and bonds, and some in alternative funds. We are very excited about the range of investment management resources we now can offer."

Oceanic is also looking at the potential being offered by the prospect of new legislation. Many jurisdictions including Barbados are considering legislation for foundations, and this could provide significant new opportunities for Oceanic in markets that are presently untapped.

Mutual fund administration is seen as a very attractive market. Bill Thomson, vice-president of Oceanic Investment Management Limited, is enthusiastic about their administration system which provides "everything from the reconciliation of mutual fund management to NAV calculations to shareholder records – the whole process from front to end. It also applies itself to individual client account management. It’s already one of the most widely respected mutual fund administration systems in the world and we’re finding it applicable to other areas as well, in the private banking area such as portfolio management."

Hedge funds are seen as a key area in which Oceanic is developing unique expertise. "Hedge fund growth has been very strong and now we have hedge funds managers all over the world doing very specialised types of management," say Thomson, "but our unique niche in this area has been through the Derivatives Portfolio Management (DPM) connection. Its specialist hedge fund administration systems and knowledge of the industry have allowed us to differentiate ourselves from the competition."

In the long term Oceanic is looking to move into other attractive domiciles in the Caribbean-Bell highlights British Virgin Islands and Cayman as being of potential interest. He restates his belief that establishing a base in Barbados has been a very good move for Oceanic, providing valuable opportunities in an energetic marketplace, and that the purchase of St Michael has given the group immediate visibility. "I think we have a very good reputation," says Bell, "and we’re finding the transition from nobody to somebody in Barbados very rapid."