Finance giant relocates Scottish jobs to Poland

EDINBURGH'S position as a leading financial centre was dealt a fresh blow yesterday, after details emerged of plans to move "middle-office" financial service jobs to eastern Europe.

The Scotsman has learned that US financial giant Citigroup has identified areas of its business in the Scottish capital that could be transferred to a "centre of excellence" in Poland.

In an e-mail, staff were warned that a review of the company's "operating model" had suggested that the work of four Edinburgh teams could potentially be moved abroad.

The capital is already reeling from Royal Bank of Scotland's announcement earlier month to axe 9,000 posts over the next two years, including about 4,500 in the UK. Staff at Bank of Scotland are also awaiting news of a headcount reduction following the takeover by Lloyds TSB of HBOS.

While some back-office financial jobs have already moved to eastern Europe, experts believe Citigroup's move suggests an acceleration of the trend.

Fears are now growing that structural changes in the industry, such as the movement of jobs to lower-paid economies, will continue apace, driven by the desire to cut costs.

Ron Hewitt, the chief executive of Edinburgh Chamber of Commerce, warned that the plan for job cuts was a "distinctive threat" to Edinburgh's position as a major financial centre.

Citi warned staff in its e-mail that the "reconciliations, treasury settlements, stock settlements and transaction control teams" could be affected by the proposals.

The posts have been described as "middle-office" functions – those that do not necessarily interact directly with clients, but are still skilled roles.

It is understood that less than 10 per cent of positions at Citi's Edinburgh base – it employs about 400 staff in the capital – are affected by the proposals. Citi's e-mail said a "full consultation" would be carried out with staff and "every effort will be made to investigate ways to mitigate the impact ".

But Mr Hewitt said the job losses came as "very disappointing news", adding: "If detailed compliance jobs of this nature are being shipped to foreign parts, however small the numbers of people involved, then it's a distinct threat to the importance of Edinburgh as a major centre for financial services.

"While we are used to call centre-level functions being placed elsewhere, we would be surprised if the transition of jobs at such a high level could be easily achieved in any great number."

The news came as Citi's US parent group yesterday posted a first-quarter loss of $966 million (£654 million), less than banking analysts had predicted.

Industry experts said Polish proposals such as those being put forward by Citigroup were made to save money.

Bryan Johnston, divisional director at investment management firm Brewin Dolphin's Edinburgh office, said: "I think you have to acknowledge the fact that we're a relatively expensive country for employment.

"I fear this is a trend that will continue. This is disappointing, but companies working international with operations that don't actually relate physically to clients or customers can afford to put their support services anywhere in the world.

"That's what they're doing, they're going for the cheapest area," Mr Johnston said. "We have got to wake up to the challenge."

Tony Virdi, a board member of trade group the National Outsourcing Association, said firms could expect to pay workers in eastern Europe about half the amount of their Scottish equivalents.

He added: "This is not a new trend. Back-office work is being looked at by all financial services organisations and in many cases it has already been done.

"Some of the Scottish companies have been slower at outsourcing than some of the companies based in England.

"In finance and administration outsourcing, the first thing that normally goes is financial accounting, human resources and those kind of back-office functions. These jobs are an extension of that.

"Some of these are more 'middle-office' than true back-office jobs. Reconciliation is a key area. They require a certain level of prowess in terms of educational skill, and countries like Poland, Hungary and the Czech Republic have a highly skilled workforce that is bilingual."

But Owen Kelly, chief executive of industry body Scottish Financial Enterprise, argued jobs were not leaking abroad.

He said: "This area – asset servicing, the 'plumbing that underpins international financial transactions – has been a real growth sector for Scotland.

He said: "I think what we're seeing at Citi is what you would expect from any well-organised company: reconfiguration to deliver the best value for customers and shareholders.

"I think it's true that taking advantage of a 'centre of excellence' in Poland makes good business sense, but their commitment to Edinburgh remains unshaken, and that reflects Scotland's qualities in the skills that asset servicing really values."

He added: "All financial service companies … are looking to maximise their efficiencies, and this is part of that.

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One Scots bank bucks the trend and reports a profit

FOR as long as most in Scotland's banking world can remember, Sir Angus Grossart has dominated Edinburgh's financial scene, and his investment nous has made him a fortune estimated at more than £150 million.

But yesterday the investment guru revealed how torrid the year has been for his merchant bank, Noble Grossart, where profits have been halved. Although it is tiny compared with Royal Bank of Scotland and HBOS, at least Noble Grossart made a profit last year.

The Sage of the New Town hailed his bank's "intuitive caution" founded on its "financial anthropology" – based on its 40 years of offering loans, investment and advice to wealthy Scottish individuals and industrialists. In an unusual and at times impassioned statement introducing the company's latest accounts, Sir Angus said his bank had never believed that the good times fostered by rising house prices and cheap credit would stay.

"It is wise to remember trends seldom last," he said.

Sir Angus also hit out at politicians, criticising the way many have been so quick to judge the financial community harshly. He said:"Markets and economies will only recover when trust and confidence in financial institutions and markets is restored."

He called for politicians to "reflect" on this.

In its results to the year-end of January 2009, profits at the bank – which is 70 per cent owned by Sir Angus – fell to £5 million from £11.7 million the year before. The rest is owned by Ewan Brown, the former Lloyds TSB chairman who has been on the board of Noble Grossart since the company was founded in 1969.

However, the group's assets were worth £77 million, up from £75 million. Most of its assets were in the form of hard cash, shifted from riskier assets, such as investments and loans, which had been cut from £38 million to £17.5 million.

Sir Angus says "no-one predicted the timing and the virulent severity of the economic and financial downturn".

But he adds that his company's "long-held prudent approach" meant it "saw amber and red lights ahead" and switched its investment strategy in time to prevent an even worse return.

On the economic future, Sir Angus was lyrical, but upbeat: "The ground ahead is rocky, and obscured by a thick mist, but difficult times will not last forever." He added: "We believe we are very strongly placed when conditions stabilise, as they certainly will."

Despite having a reputation for offering shrewd financial advice, the bank's income from fees was down from £6 million to £3.5 million, although this was likely to be due to a downturn in corporate transactions, such as mergers and acquisitions.

Despite seeing his company's profit and income fall, Sir Angus took a £2.3 million dividend. The rest of the profits – £2.7 million after tax and dividend – were paid back into the bank's reserves. Meanwhile, staff wages and salaries at the bank fell by slightly more than £1 million.

The bank also manages a number of Sir Angus's investments in private Scottish companies. He has a 28 per cent share in bus manufacturer Alexander Dennis, which he owns along with Rangers chairman David Murray and Stagecoach bus tycoons Brian Souter and Ann Gloag.

Profits from his investment in David Alexander fell from £7.2 million to £4.6 million.

However, his investment in property company, Bellhouse Joseph, has bucked the trend. Last year the company cost Sir Angus £1.1 million, while this year it made a £500,000 profit.

Dividends from investments in equities fell dramatically from £5.5 million to £1.5 million, likely reflecting both a shift from investing in stock markets and a move away from volatile stocks. Similar income on unlisted investments rose slightly.

Sir Angus was "not concerned" that profits had fallen, as the previous year's performance had been "exceptional".

ERIKKA ASKELAND

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FINANCIER WORTH £150M REMAINS CANNY WITH CASH

ALTHOUGH known as the doyen of Scottish finance, Sir Angus Grossart has had to endure the odd controversy during his glittering career.

In 1978, when Sir Angus was one of the auditors to the House of Fraser holding company, Scottish & Universal Investments, he came under fire after accounts were misclassified over a £4 million loan. Sir Angus was left untainted by the affair.

He has also been attacked for sitting in the saddle too long – in 2003, he was forced to step down as chairman of the Scottish Investment Trust after pressure from shareholders angry at the length of his 27-year term.

Last year, he described himself as having "done 15 rounds several times in this business, but I've never been on the canvas".

Those in the know say there is scarcely a financial deal of consequence that happens in Scotland without Sir Angus being involved.

Born in Lanarkshire, Sir Angus's first job was selling toffee from a market stall in Glasgow. He attended Glasgow University, where he qualified in law and accountancy. With the entrepreneur Iain Noble, he set up Noble Grossart, Scotland's first merchant bank, in Edinburgh in 1969.

He is now worth a reported £150 million. Yet despite his wealth, he has been known to cadge a lift with a fellow attendee of the lecture circuit to save himself the train fare.