WATCHING Scotland's financial industry right now is a bit like watching for the first snows of the year. When you see the first white dusting across the mountain tops, you know it's time to brace yourself for the long winter chill.
Since last summer, when the credit crisis depression first swept out from those dud mortgages in America, we have been waiting for the first storms to hit our shores. Now they have arrived.
How bad might this winter of financial discontent get
? And what does it mean for the Scottish economy?
This week, HBOS, Scotland's second-largest bank has said it will cut around 90 jobs in its corporate banking department, half of them in Edinburgh. Aberdeen Asset Management, the fund managers, has said it wants to cut £15 million from its payroll bill. I estimate that may mean about 300 jobs, though at least half of them will be outside Scotland.
Yesterday came a big job number: 900 to go with the closure by Barclays of the Goldfish credit card call centre in Cumbernauld.
Since Goldfish was already struggling in what were said to be difficult market conditions before it was sold by Discover Financial Services to Barclay's in February, these cuts look much more attributable to the credit crunch than to post-acquisition rationalisation.
Then there is talk that the Royal Bank may shed 7,000 of its 168,000 employees.
Many of these could result from the takeover of ABN Amro, but the bank has said that it is looking at other cuts because of the credit crisis. It would be stupid to think that none of these further job losses will be in Scotland.
So that's well over 1,000 jobs definitely going and signal flags of more to come hoisted. That accounts for just under 1 per cent of the 108,000 people reckoned to be employed in Scottish financial services, well on the way to fulfilling the 5 per cent job loss (5,000 jobs) forecast recently by Douglas Adams of the Ernst & Young ITEM Club.
How does that compare with elsewhere? In America, there have been about 43,000 jobs lost in financial services, with another 20,000 expected to go by the end of the year. About three-quarters of these are in the New York area, where about 740,000 jobs are in the sector.
This means that by the end of 2008, New York will have lost about 6.4 per cent of its financial workforce.
In London, forecast job losses have steadily risen. Last December, the Centre for Economics and Business Research expected 6,500 jobs to go in 2008. By April, this number had been revised up to 11,000 this year and 8,200 in 2009. Two weeks later, analysts at JP Morgan said 19,200 was too optimistic and suggested 40,000 would have gone by end 2009. If so, that equates to about 5 per cent of London's financial workforce.
Thus, to forecast Scottish job losses of 5 per cent does not look unreasonable.
Scottish Financial Enterprise thinks this is a mite too pessimistic, maintaining that there is more resilience in the industry here than elsewhere. It is true that Scotland has none of the trading and hedge fund activity which is being hammered in London, but we do have more of the call-centre and back-office type work which is also being hit hard. It is also worth mentioning that the picture is not all gloom – Barclay's, for example, is increasing the staff in its Glasgow wealth management office.
Nevertheless, and considering that there will be knock-effects in office servicing, public relations, restaurants and other dependent trades, the outlook is distinctly chilly. But estimating how this will affect the economy is where we come unstuck.
Financial services are one area where Scotland has done well, with annual growth averaging 7.2 per cent since 1998 compared to 6.1 per cent in Britain as a whole.
The chart of this progress (see below) shows, however, that last year was a bit of a disaster, with a recession in two quarters and annual growth of only 2 per cent compared to 11.1 per cent in Britain.
Nobody in the financial world believes the Scottish figures. If they were accurate, 2008 is going to be a complete turkey of a year, not just for financial services but for the whole Scottish economy, with all hope of raising growth rates abandoned.
Just as no financial firm boss would tolerate trying to plan ahead with data as ropey as this, neither should the Scottish Government. It is intolerable that decent economic forecasts from an event such as the credit crunch cannot be made.
• Coherent comments and cogent criticism welcomed at: pjones@ednet.co.uk.
The full article contains 817 words and appears in The Scotsman newspaper.
