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Pros and Cons of Onshore Bank Relocation

posted about 1 year ago

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Author: Robynne McPadden | Head of Financial Services, Contract

Many US banks are reviewing their location strategy, as costs in the traditional financial centers such as New York continue to eat into profit margins. Several strategies are usually considered in these circumstances, including offshoring, nearshoring and onshoring, which is rapidly gaining in popularity. Instead of setting up a base in a distant (offshore) or nearby (nearshore) territory, onshoring means that a domestic business invests directly in the domestic (onshore) marketplace.

Why relocate onshore?

Recent moves have been taking place to lower-cost areas, such as Arizona, New Jersey and North Carolina. The move away from Tier I cities often means lower real estate prices and lower local wages than those in older financial hubs. JP Morgan Chase and Bank of the West have both set up operations in Tempe, AZ, for example, while Barclays Bank have moved from Delaware to Whippany, NJ and US Bank has made a substantial onshore investment in Charlotte, NC. US Bank is also exploring onshore expansion in other states where its customers and employees are concentrated, such as Texas, Georgia and Florida.

American Banker in 2018 cited “tax sweeteners and a lower cost of living” as reasons behind the relocation to Arizona of Northern Trust, Bank of the West and MUFG Americas, while US bank accounted for their onshore move with technological advancement and a consequent change in their customers’ banking behaviors. A wish for more simplicity and a reduced physical footprint also encourages consolidation of physical locations, while wider broadband accessibility allows digital services to expand. Charlotte is already America's second largest financial services hub with many firms established there, including Bank of America, Barings, LPL, Wells Fargo and Ally Invest. There are also many tech companies, and as financial services become increasingly digital, this offers opportunities for cross-fertilisation of tech personnel.

Barriers to recruitment

Relocating a financial services institution to an onshore site could pose recruitment problems, however, since the concentration of appropriately skilled workers could be much lower than in Tier I cities. A 2018 Employer Needs Survey conducted by NC Works Commission's Labor and Economic Analysis Division revealed that half of all the businesses surveyed had difficulty in hiring. Overall unemployment is low, but there is consequently more competition for employers to attract workers from a smaller talent pool. Employers also have to work harder on retaining their existing workforce when workers now have more chance of switching jobs.

Among the surveyed NC employers, the most frequently cited reasons were the applicants’ unemployability (based on factors including professionalism, work ethic, motivation and reliability). This was followed by the low number of viable applicants and their lack of relevant work experience, appropriate work skills or adequate education. General trends also indicate that although base market salaries are typically lower than NY rates, firms are still having to pay higher salaries than the local base market in addition to their relocation expenses.

Conclusion

With widespread expansion of the technological infrastructure, Tier II and III cities are bustling with tech business investment and innovation, The pool of talent in this location should therefore be deep, but financial services recruiting in areas of smaller talent pools and less qualified applicants could be a substantial stumbling block to onshore bank relocation.