# London vs. New York smackdown

#### Andy Nguyen

Which city is the real financial capital of the world? In one corner, the IPO champion and derivatives king. In the other, the investment-banking titleholder. The battle isn't over - and new contenders are vying for a shot, says Fortune's Peter Gumbel.
FORTUNE Magazine
By Peter Gumbel, Fortune
July 23 2007: 6:52 AM EDT

(Fortune Magazine) -- To understand why London thinks it's beating New York in a race to become the financial capital of the world, walk across the Millennium Bridge toward St. Paul's Cathedral and count the number of cranes that clutter the skyline. The City, London's financial district, is in the midst of its biggest redevelopment boom since the Blitz, one result of the $100 billion in foreign investment pouring into the British capital annually. The money is coming from the Middle East, Russia, India, China, and the U.S., and it's padding wallets, filling restaurants, pushing real estate prices through the roof, and fueling a feeling of self-confidence that spreads from coffee shops to Mansion House. That's the ornate official residence of the Lord Mayor of the City and the scene of an annual black-tie dinner for bankers. This year's banquet in June seemed more like an Olympics celebration (yes, London beat New York in landing the 2012 games) as Gordon Brown, just days from becoming Prime Minister, rose to declare victory. "Today over 40% of the world's foreign equities are traded here, more than New York," he said. "Over 30% of the world's currency exchanges take place here, more than New York and Tokyo combined. And while New York and Tokyo are reliant mainly on their large American and Asian domestic markets, 80% of our business is international." This is an era for London, Brown boasted, "that history will record as the beginning of a new Golden Age." New York is hardly in a Dark Age. But by comparison it seems stricken with self-doubt. Mayor Michael Bloomberg and Senator Charles Schumer commissioned a McKinsey report earlier this year that highlighted weaknesses in the city's position as a financial center, including too much litigation and heavy-handed regulation, and warned that New York will lose its global preeminence in a decade if they are not addressed. Governor Eliot Spitzer has convened a blue-ribbon commission to figure out solutions. In Washington, Treasury Secretary Henry Paulson is calling for significant changes aimed at strengthening the competitiveness of U.S. capital markets, and Christopher Cox, chairman of the Securities and Exchange Commission, is talking bluntly about the need for the SEC to rethink the way it works. There's no shortage of evidence to underpin the contrasting moods in the two cities. Statistics about the amount of funds raised by foreign firms are especially jarring: In 2001, 12 of the top 20 global IPOs were listed in the U.S., according to Dealogic; last year, just two of them were. An upstart over-the-counter market in London called AIM raised as much in IPOs last year as Nasdaq. MasterCard is just the latest organization to publish a study, in June, which ranked London ahead of New York as the world's top center for commerce. Even Hollywood is getting in on the act: 20th Century Fox is reportedly basing the sequel to Wall Street, the hit 1987 movie in which Michael Douglas declared "Greed is good," in London. How come? The view from the British capital is that while New York has been riding the now faltering U.S. economy, London is riding an even bigger tiger, the booming global economy. While the U.S. is weighed down by the 2002 Sarbanes-Oxley Act and other post-Enron financial regulation - so the argument goes, although it's far from clear that the controversial act itself is the main problem - London has put in place a new, lighter, and altogether more flexible regulatory approach that makes it easy to do business, regardless of nationality, currency, or accounting system. While the U.S. built walls after 9/11, London is wide open and welcoming, notwithstanding its own concerns about terrorism. The U.S. has class-action lawsuits, frivolous or otherwise, that act as a deterrent. Britain has a fiscal system that attracts well-heeled foreigners. (Residents not officially domiciled in Britain are taxed only on their British income, not their worldwide earnings.) "It's going to be very difficult for New York to get back into the game," says John Ross, financial advisor to London mayor Ken Livingstone. Only half-joking, he adds, "Someone said the other day that all New York needs is a total change of the U.S. political system and a total change of the U.S. legal system." Read more: London vs. New York smack-down - August 6, 2007 #### Bridgett Thanks Andy for the posting... please post more info about the City when you have it. #### Dmytro here's the link to the report that the article refers to (the one that the Mayor and the Senator commissioned) - http://www.senate.gov/~schumer/SchumerWebsite/pressroom/special_reports/2007/NY_REPORT%20_FINAL.pdf i believe the task for the team working on that report was rather a sensitive one - on one hand to alarm enough people in DC about the negative potentials (and to open them up to some long-needed reforms, e,g, immigration, etc); on the other hand - not to show to the rest of the world that we (New York) are slipping, i.e. that we're still number one, and that we're not going anywhere, we're just taking a sober, pro-active look at the situation. given the media's lust for loud statements, the message that came across more often was the alarmist one. there are numerous reports available (from both the US and UK/EU sources) that show a lot of positive sides of the US regulation, as well as reveal weaknesses of the Brittish "light-touch" approach to regulation (even in today's wsj, the article asks whether FSA is like a toothless tiger). so, given the abundance of supporting materials, one could reasonably make a strong point about either of the cities being on top of the global financial arena. but that's the job for the PR majors, not us MFEs. the beauty of our training is that it allows us to be successful in many various environments, without allowing outside factors dramatically affect what we do. go Baruch MFE!:smt006 #### Bridgett Yup, PR is important and cheer-leading is just as necessary as a sober look of oneself -- after all the outlook of any economy is rested upon the perceptions, at least partially anyway. Thanks for sharing the info guys. #### Andy Nguyen By John Willman, Business Editor Published: February 28 2008 21:52 | Last updated: February 28 2008 21:52 London is losing its status as the world’s leading financial centre and being overtaken by New York, according to a global survey of finance professionals. The collapse of Northern Rock and the proposed tax crackdown on non-domiciled residents are making the UK less attractive to overseas businesses, according to the City of London Corporation, which commissioned the survey. A separate survey, also commissioned by the City, said the UK tax system had lost its competitive edge over other financial centres. The UK had become increasingly unpredictable and uncertain, complex and unnecessarily aggressive in its approach to taxpayers, it found. Thursday was the last day for submissions to the Treasury on the government’s plans to charge non-doms £30,000 a year if they wanted their overseas income to remain outside the UK tax net after seven years’ residence. City leaders have already warned that the proposals, which include a crackdown on offshore trusts, will provoke an exodus of foreign investors and professionals who have contributed to its pre-eminence as a financial centre. The CBI said the proposals were ill-conceived and damaging, sending out a message that Britain was no longer an attractive place for foreigners to work. The Global Financial Services Index, compiled from questionnaires completed by 1,200 financial services workers around the world, said London was still the leading financial centre. The index rates cities on factors such as property costs, regulation, taxation, the supply of skilled staff, the responsiveness of government to business needs and the quality of life. However, its lead over New York had halved over the last six months – and questionnaires returned since the second index was published in September showed New York outstripping Londonn.London was rated top based on all returns since the survey began 18 months ago, with 795 points to New York’s 786. However, the 411 responses since the September index showed New York’s score as 46 points higher. Offshore centres such as Jersey and Guernsey had become more competitive, as had Shanghai, Dubai, Qatar and Bahrain. The second survey on tax competitiveness found that business leaders in London believed the UK’s tax framework has become less competitive at a time when many other countries were reducing their tax rates. Ireland, Switzerland, the Netherlands, Bermuda and Singapore were judged to be more attractive, while the UK tax regime now seen as increasingly unpredictable and uncertain. #### giampiero Well, I lived in London for 4 years and I don't miss the high cost of living USA (go USA!) is by far the best country to live in, if you are a consumer. All taxes (income, real state, capital gain) are close to nil compare to UK. Of course, I can think of a million things better in London than in New York (and viceversa) but cost of living is one that I do not miss #### Andy Nguyen All taxes (income, real state, capital gain) are close to nil compare to UK. Of course, I can think of a million things better in London than in New York (and viceversa) but cost of living is one that I do not miss Giam, I always hear about the high cost of living in London but never have a numerical picture of how high. Are we talking about$20 McDonalds burgers, $15 Starbucks,$5000/1bd/month rent here ?
I thought NYC is pretty expensive with all the rent and income tax and London at best is a few percentage higher.

#### DominiConnor

Immigration is no more popular in Britain than in America.
However, against the popular misconception, in Britain, money wins.

Lety's do this simply. Next time Baruch students assemble, look at the faces and listen to the voices. How many bog stand anglo-males are there ?

Access to international labour markets is critical, and from the first article NY is hopelessly handicapped.

British immigration policy has been specifically adapted to make it more attractive to highly skilled workers.
American immigration policy is controlled by crazed creationists who believe the Rapture is any day now, and it's hard to see that ending well.

As headhunters we see profoundly different attitudes to the hiring of non-nationals in London and NY. US managers really hate the idea of getting involved in a corrupt, random process.
and yes, contrary to some people's view of bankers, they really don't like corruption one little bit.

British hiring managers see it as a chore they outsource and costs a little money, but they can have certainty about whether someone will be allowed to work in London or not.
By "British" I of course mean Americans,French, Germans, Iraqis, Indians, Pakistanis, and two managers we know whose nationality is not recognised, but all of whom happen to be in London.
I have the database, and know what it tells me. One surprise we got was that on our "people to watch" list "Mohammed" was easily the most common name.

With no legal shit, London can draw upon the highly formal maths training of French schools, the engineering skills of Germans and Italians, programmers from Ireland and the Czech Republic, and pretty much every skilled person in Poland. Australians, and various other former British colonies get an easier ride.

The current direction in global markets is that they are global.

Because Britain is a second tier economy, it's financial sector has been outward looking for a very long time. It is thus better placed to deal with the rise of China and India than
Wall Street.
The law is set up for the benefit of the City, indeed the City of London is less democratic than the average 3rd world country. It is formally "the corporation of the City of London", ie a business. In the City, banks have votes to elect councillors. Yes, really. More software houses vote in some districts than people. Makes "hanging chads" look quite mild.

At one level that is bad of course, but the politically motivated actions of NY prosecutors simply could not happen in London. It does not help NY's position as a financial centre to explicitly use the real threat of being raped by imprisoned murderers in questioning on compliance issue.

These are structural issues, no single law, or change of personality or party will change this.
Recall that the hawkish, bank-friendly current British government is the "Labour Party", yes, officially they're socialists, and the opposition is actually trying to be more business friendly.

#### giampiero

I always hear about the high cost of living in London but never have a numerical picture of how high. Are we talking about $20 McDonalds burgers,$15 Starbucks, $5000/1bd/month rent here ?I thought NYC is pretty expensive with all the rent and income tax and London at best is a few percentage higher. In general, everything is 2x price of US, and salaries are not commensurate with this difference So less purchasing power. Of course this is purely my own anecdotal experience McDonalds or Starbucks prices comparisons don't tell the whole story (it's kind of like measuring inflation by using CPI and excluding Food and Energy). Typically have to look at all the recurrent expenses that really matter and then you see that consistent trend of 2x showing up A few comparisons that come to mind... - Sales tax (VAT) is 17% (instead of ~8% in NYS) - Gasoline is ~$9/gallon (cars are more fuel-efficient though, but not 3x)
- Whatever nice car you think you can afford in the US, you can't afford in UK
- Natural gas and electricity bills are twice what they are in NYC
- Renters pay real state taxes (unlike NYC) through Council Tax

#### Andy Nguyen

British immigration policy has been specifically adapted to make it more attractive to highly skilled workers.
American immigration policy is controlled by crazed creationists who believe the Rapture is any day now, and it's hard to see that ending well.
Do you care to give a layman explanation of the British immigration applied to foreign workers as opposed to American immigration law applied to foreign workers ?

I'm familiar with US immigration law but the article below doesn't tell me UK is any better.
The basics

In some ways the law is very strict about who can come and live in the U.K. People from most countries in the world - like Brazil, or Russia - have to get a visa just to get past the airport, even if they are only coming as a tourist. Again, for most people, if they want to work in the U.K. it's even harder than getting a tourist visa. You can only work here if you're doing a specialist job that a British person can't do. This applies to people like footballers too - a Brazilian player can't be given a contract unless the government agrees.
The European Union

But this is not true for everyone. Anyone from most European countries can come here without a visa, and we can go to their countries, because we're all in the European Union. We can travel freely either as tourists or to get work. If large numbers of British people wanted to go to Germany or France to work, then they could just go (though of course there might not be any jobs). The same applies to French or German people - they could just as easily come to the U.K. In 2004 ten new countries joined the EU and some, like Poland are large. All these countries are poorer, and there are fewer jobs, so not surprisingly now that they don't need visas, many people from those countries want to find work in the rest of the EU. Not all EU countries let them come, only Ireland, Sweden and Britain have allowed free entry. They will have to wait until 2008 for free entry to the rest of the EU. In 1900 a quarter of the world's population were British subjects, born in Britain or some part of the British Empire. The British Government decided who could stay and who had to leave. Immigration control began with the Aliens Act 1905. This was brought in to try and stop refugees (mainly Jews) from leaving Eastern Europe and come to Britain. For a long time the law wasn't changed much but form the 1960s it became more complicated and more strict.
A bit of history

Once it was much easier for people from outside Europe to come here. After World War II, the U.K. was short of workers and needed more - we had lots of new factories which were only working slowly because the owners couldn't find enough workers. We also had a new Health Service which was taking on new workers all the time. At first employers looked for new workers from places like Poland and Italy, but there weren't enough (other European countries were also short of workers). Between 1945 and 1947, over 345,000 European immigrants came to the UK. Then employers looked in other countries for workers, places where they knew some English was spoken and where people had worked for the British before - the Commonwealth countries and colonies. They asked workers from these countries to come and work in the U.K. India, and many countries in Africa and in the Caribbean had been controlled by Britain and were just becoming independent. Many men from these countries had been soldiers in the war and many others (including women too) had worked in factories to produce things for Britain to help fight the war. The soldiers had fought in the Far East, in Africa, and in Europe. After the war, wages were higher in Britain than the colonies, so it was almost a natural step for many people to think of working here. Lots of Irish people came too.
This did not last very long. In 1962 the Commonwealth Immigration Act was passed to make immigration harder. This might be because Britain did not need so many workers, and it might have been because some white people didn't like the fact that many of the new immigrant workers had dark skins. Britain was used to ruling people with different cultures in the colonies, but having them living nearby was new.
More restrictions came in with the Immigration Act 1971 and several times since then. Today, people from old colonies, Indians, Pakistanis, Bangladeshis, and people from the Caribbean and Africa, find it very hard to get into Britain. Many other nationalities find it easier. If you are from India and you have a relation living here, or if you marry someone here, then it is possible to get in. If you have no connection with anyone here it is almost impossible to get the right to settle here and very difficult even to get a visitor's visa (because they think you might just stay).
So how do you get into Britain?

As a visitor almost anyone can apply to come for a short visit, though the authorities will be more suspicious of some people than others; people from other EU countries can come as often as they like without any special permission.
If you live abroad but have close family here, then you may be allowed to come here to live and work. It does not matter whether you are young and not yet working, or of working age, or retired.
As was explained above, people from any EU country can come here at any time to live and work.
If you are an asylum seeker and you have to leave your home country because for no fault of your own you are not safe there, then you can stay in Britain as a refugee if the authorities believe you'd really be in danger if you went back.
It's worth remembering that arguments about immigration are seldom really about numbers or about overcrowding. Until about 2004 more people left the country every year than entered it, and most of those who come in are white.

Britkid Serious Issues - UK IMMIGRATION LAW

#### DominiConnor

Do you care to give a layman explanation of the British immigration applied to foreign workers as opposed to American immigration law applied to foreign workers ?

I'm assuming you mean the programmes set up for economically useful people, like Baruch grads ?
The British system gives points for economically useful people.
Thus you get a big wad of points for a PhD, with fewer for Masters or Undergrad degree.
Points for being young.
You get still more for earning money.
10 for speaking English.

You need 75 points.

For the sort of people I'd expect to see coming out of Baruch, I'd assume >80% will qualify:
35 for the Masters
20 points for being under 28 (10 for 28/29, 5 for <31)
10 For speaking English (doing the Baruch masters proves this)
10 for having £2,800 in the bank (about $6K) If you did a PhD then you get 50 points rather than 35. Thus I’d expect >80% of you lot to qualify by education/age alone, which means the system is working as intended. If you’ve worked, then you get 5 points for$30K, then about 5 points per $5K If you have a qualifying MBA, then you get in automatically. I'm doing a spreadsheet for this, but I haven't yet got them to tell me how the income is discounted across countries. Unlike the USA, there are explicitly no race or nationality quotas, indeed various artefacts of the way earnings are evaluated, favour Turks & Africans, because it allows for the fact that earning a given amount in a rich country is less impressive than in a poor one. Assuming your earnings are in the USA, you get 5 points for$30K, then 5 points for each \$5K (about).

However, you only get to work in Britain, not Europe. The French, Polish & Germans are absolutely furious that Britain has no race or religion barriers.

The article Andy cites in incorrect in many details.
Firstly it is not just EU citizens that can work in Britain, there are several non-EU states that can work in London. As for Asylum seekers, it is based upon politics not whether they are expect to be badly treated. Thus they may be sent Egypt or America where they may legally be tortured, or Darfur where there is a genocide going on, but isn't called that because it's only black people dying. Afghanistan is on the "white list" (yes, it's officially called that), of countries regarded as "safe".

Also the criteria simply aren't "no British person can do the work", they are less strict than that, and more complicated.

The legacy of the British Empire (I'm old enough to remember it), is that if you have grandparents who were British, you can work in London. I'm not up on Irish law, but last time I looked, you could get an Irish passport merely by proving you had ancestors with "Irish sounding" names. This is partly a political thing, and partly because they destroyed most records in their civil war. Irish passports are useful because you can work anywhere in Europe, and includes Dublin which is fighting Paris for being Europe's 4th most important financial centre. (After the City of London, Canary Wharf and Mayfair)

#### Andy Nguyen

Very informative post, Dominic.
Glad to know that we have enough points based on edu/income. It is set up similarly to Canada and the ill-fated US immigration proposal.

Is getting a permit to work in the UK the first step in getting UK citizenship like H1B leading to green card leading to citizenship in the US ?
Or work and citizenship two unrelated things in the UK ?

Is there a quota like H1B ? How long does it take to obtain a permit ?

Firstly it is not just EU citizens that can work in Britain, there are several non-EU states that can work in London.<snip> The legacy of the British Empire (I'm old enough to remember it), is that if you have grandparents who were British, you can work in London.

To my knowledge, the only non-EU people allowed to work are "patrials" (i.e., those who have at least one grandparent born in the British Isles: usually Australians, New Zealanders and South Africans). There are also legislative proposals afoot to abolish this: it's seen as an anachronism, not in line with Britain as an EU state.

Britain has a two-tier policy towards immigration: if you're white, then the tacit policy is a nod and a wink; everyone else has to play by the rules, which can be tough hurdles. The Germans and French are just more honest and up-front about it: no non-whites, please; we have more than enough of our own. And the Poles have yet to learn what "politically correct" means (i.e. how to display a hypocritical exterior). Europe is very different from the United States and it's a bit like comparing apples to oranges. The United States does not define itself ethnically; European states do.

#### DominiConnor

Is there a quota like H1B ? How long does it take to obtain a permit ?
There are no quotas, they were considered and rejected. You get the points, you get in.

Work and citizenship are indeed decoupled, indeed currently you can be a British subject and not allowed to work, which is pretty crap.

Things are being upgraded to maintain Britain's leadership in attracting smart people, but my understanding is that after 4 years you get an option on a passport.

BigBadWolf may be right that patriality will get abolished, but it's about the only part of British immigration policy that is politically popular, so I don't see it going soon.
A British politician
Yes it is an anachronism, and will go away of its own accord, since the set of people who benefit from it is of course declining.

The USA does not define itself ethnically, but there is a clear correlation between a country being white and Christian and getting bigger quotas to work in the USA. British policy has no such distinction, indeed it is assumed that majority of people who benefit from the new system will be Indians, though I guess Russians won't complain either.

European nations have widely different views on immigration, and governments have different views from their population. Europe has a very long way to go to achieve the free mobility of labour which has been so useful to America. Many people, including Americans easily forget how important the federal rules stopping states from stopping trade and movement are.
Britain is almost unique in Europe by allowing any EU citizen to just turn up and work, even though that is upposed to be the law.
This ain't popular, but certainly it's not as bad as France or Germany, and if they were British, quite a few people in the Austrian government would be in jail, for inciting racist violence. They do stuff like turn up at SS reunions to congratulate them. Makes the KKK look wimpy.

A big dynamic is that 50% of the educated people on Earth can speak English, and thus can at least try to work in Britain. Non European German, Polish, or Italian speakers are quite rare, and of course English is spoken widely in Europe and India. This couples with the fact that financial services are

Work and citizenship are indeed decoupled, indeed currently you can be a British subject and not allowed to work, which is pretty crap.

What kind of full British citizens aren't allowed to work? Except those incarcerated, of course.

Things are being upgraded to maintain Britain's leadership in attracting smart people, but my understanding is that after 4 years you get an option on a passport.

Five years, unless you're married to a British citizen, in which case it's three. Also, the process of citizenship won't be automatic pretty soon: applicants will have to pass tests, maybe do some community work to demonstrate their esprit de corps.

The USA does not define itself ethnically, but there is a clear correlation between a country being white and Christian and getting bigger quotas to work in the USA.

There was a quota system in the US for immigration: 120,000 for Europe and 180,000 for the rest of the world. But that was abolished by Johnson in 1965. No national H1B (or any other) quotas to my knowledge (though Australian are eligible for E3s and Canadians and Mexicans for TN-1s).

Britain is almost unique in Europe by allowing any EU citizen to just turn up and work, even though that is supposed to be the law.

As you say, almost. Ireland and Cyprus also allowed it back in 2004, with the accession of ten new EU members (Poland, Czech Republic, etc.). Among the Schengen countries (Holland, Germany, France, Italy, Denmark, etc.), there are no real constraints to moving around. Indeed, no real problems for a Schengen country citizen to even working in a non-EU country like Norway (all that's needed is a job offer).

#### DominiConnor

You may be right that it's 5, but the number has changed more than once before, and I'd bet it changes again.

Among the Schengen countries (Holland, Germany, France, Italy, Denmark, etc.), there are no real constraints to moving around.
But Schengen is not the EU, and even there's petty bureaucracy to slow things down, especially in Germany. Italy is getting really pissed with the system, even though the EU is popular there.
Also of course there are still many Europeans who haven't learned English, which slows it down. It's a mess.
There's various British subjects who come from places like Hong Kong who have British passports but aren't allowed to work. Dependant relatives can end up like this as well, it's bad.

The "community work" shit is a pipe dream, I give it 50% it doesn't even start and 49% that a set of loopholes and scandals kill it. It came about because Tony Blair wanted to give exemptions to unskilled Christians who could be brought in no other way. Britain is apparently a major destination for missionaries, since it has a fewer practising Christians than Lesbians.
The exam is a nonsense, and will either be reformed or abolished, but I doubt it will be a major hassle for people smart enough to pass the highly skilled migrant filter.

But Schengen is not the EU, and even there's petty bureaucracy to slow things down, especially in Germany. Italy is getting really pissed with the system, even though the EU is popular there.

Schengen is that subset of the EU that really matters (except for Britain, which never joined up). Just about all the West European countries are members of it. You're right that the bureaucracies of some of the EU countries drag their feet with regard to the paperwork involved with work and residency from other EU/Schengen countries.

There's various British subjects who come from places like Hong Kong who have British passports but aren't allowed to work. Dependant relatives can end up like this as well, it's bad.

That's why I said "full British citizens." These other people have different kinds of British passports that don't give them the right of abode in the UK, poor sods. These passports are next to worthless.

#### Andy Nguyen

That's why I said "full British citizens." These other people have different kinds of British passports that don't give them the right of abode in the UK, poor sods. These passports are next to worthless.
Are there second-class citizens in UK ? A half-full British citizen with passport and not allowed to work ?
At least, in the US, anyone with a green card can work almost anywhere they want. The citizenship gives them the right to vote and work for federal government.
As far as Wall Street is concerned, a green card is as good as citizenship so for a long time, most people with GC doesn't bother applying for citizenship. Things changed after 9/11 and the ill-fated attempt to legalize undocumented people. People applied in droves to get the citizenship.

So I guess the US system is working as far as allowing people to work who want to work.

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