Archive for March, 2013

Ocwen, spinoffs grow, but company’s West Palm Beach presence overshadowed

 

By Jeff Ostrowski

Palm Beach Post Staff Writer

WEST PALM BEACH —

Is Ocwen Financial Corp. the trophy headquarters that got away?

With its revenue rising and its stock price soaring, the mortgage servicing company has been on a tear. Ocwen has snapped up rivals and has spun off two separate publicly traded companies.

But little of that growth has come in West Palm Beach, the city where Ocwen got its start and once employed more than 1,000 workers. Now the company has about 300 workers here, even as Ocwen (NYSE: OCN) and spinoff Altisource Portfolio Solutions (Nasdaq: ASPS) have added thousands of workers in locations near (Orlando, Atlanta) and far (India, the Philippines, Uruguay, St. Croix).

In one example of the move out of West Palm Beach, Altisource, a unit of Ocwen until 2009, had 5,770 employees as of Dec. 31, none of them in Florida. Ocwen had 5,063 employees worldwide at the end of 2011. But it only has 424 in Palm Beach County.

West Palm Beach can’t even lay claim to the headquarters of the Ocwen empire, which generates more than $1 billion in annual revenue and a payroll of 10,000-plus workers. Ocwen’s headquarters moved to Atlanta a few years ago along with William Erbey, Ocwen’s chairman. Altisource is headquartered in Luxembourg, and another spinoff, Home Loan Servicing Solutions, is based in Grand Cayman.

Luxembourg and Grand Cayman are known as tax havens. Both collect corporate income tax rates that are far lower than the U.S. rate of 35 percent, a level said to be second-highest in the world.

Meanwhile, Ocwen has moved a division to St. Croix, an island in the U.S. Virgin Islands with a tax rate of less than 4 percent. In a November conference call with analysts, Erbey said Ocwen’s maneuvers would push its tax rate to 10 percent or less.

“We think high single digits is a good weighted average for all the weighted taxing jurisdictions that we’re in,” Erbey said.

Ocwen isn’t alone in setting up offshore headquarters or foreign subsidiaries to take advantage of lower tax rates abroad. Cruise ship operator Carnival Corp., for instance, is headquartered in Miami but incorporated in Panama. And corporate titans GE, Google, Yahoo, Merck and Dell have lowered their tax bills by taking advantage of a U.S. tax rule that does not collect U.S. taxes on overseas profits.

In all, federal officials and economists say, U.S. corporations save about $100 billion a year by paying lower income taxes in other countries.

The high-stakes tax planning raises the ire of such groups as the Institute for Policy Studies and Citizens for Tax Justice. They see the overseas subsidiaries as irresponsible.

“What you get with lower taxes is less effective government,” said Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice. “For them to take the position that they don’t want to help pay for government is really just outrageous.”

But Alex Pollock, a fellow at the American Enterprise Institute, sees such corporate tax planning as a perfectly legitimate strategy. He said a corporation taking advantage of a lower tax rate abroad is no different from an individual taxpayer cutting his tax bill by contributing to a 401(k) plan and writing off mortgage interest.

“Any ordinary person in the course of their daily life looks for ways to lower their tax liability,” Pollock said.

For economic developers who tout Florida as a low-tax alternative to New York, Illinois and California, Ocwen’s expansion elsewhere illustrates the perils of competing on price.

“There’s always going to be places that have a more affordable tax environment,” said Kelly Smallridge, president of the Business Development Board of Palm Beach County. “That doesn’t mean they have all the assets we have here.”

The Business Development Board has made corporate headquarters a focus of its recruiting efforts, and Smallridge said Ocwen still has a significant presence here. The company’s headquarters in Atlanta is only 2,100 square feet, while it occupies 42,000 square feet in its offices near Palm Beach International Airport.

Erbey, the company’s chairman and a former Palm Beach resident, has moved to St. Croix. As the largest shareholder of Ocwen and its two spinoffs, Erbey now is a billionaire. In one consolation, President Ronald Faris still claims his home in Palm Beach County as his primary residence.

Commercial real estate broker Neil Merin of NAI/Merin Hunter Codman said Ocwen’s growth everywhere but here comes because of the needs of its business, not because of any flaws in Palm Beach County’s business climate.

“They’ve been quietly growing,” Merin said. “The employment is still here.”

But most of the Ocwen empire’s employment is in India. Altisource had 4,678 employees in India as of Dec. 31, while Ocwen employed 4,141 workers there at the end of 2011.

Seeking educated, affordable workers, Ocwen moved many of its call-center jobs to India a decade ago, and Smallridge said Palm Beach County isn’t an ideal location for call centers.

“You’ve got to be careful about targeting call centers if you’re not able to produce employees at that low-wage salary,” she said.