Wall Street no longer is the world's financial capital- London is

[Andy Nguyen]

Wall Street no longer is the world's financial capital- Lond

Is it really ? What do you think Dominic ? Since you are based in the City, maybe you can give us some inside info.

At a black-tie event this summer, some of the world's most powerful bankers and business executives gathered for a toast: "We are the international finance and business capital of the world, the world's greatest global financial center, without question," the mayor told the assembled crowd.

Canary Wharf, a financial district in London, which is enjoying a resurgence in banking and lending.

But that was not Michael R. Bloomberg talking. The city was not New York — it was London.

Even as the Dow Jones industrial average reaches new highs and Wall Street companies report robust profits, by some measures New York's long-held crown as the financial capital of the world may be slipping.

London, whose lord mayor, David Brewer, made the summertime boast at the city's annual merchants and bankers dinner, has had a heady resurgence in banking and lending. In recent years, its stock market has attracted a growing number of companies that once would have sought to list in the United States. And London is drawing an increasing tide of hedge fund assets.

Other financial centers are growing, too: Chicago will be the home of the world's largest derivatives market when the Chicago Mercantile Exchange and the Chicago Board of Trade merge, while Hong Kong is poised to be the biggest market for initial public offerings this year, with today's pricing of the huge offering of the Industrial and Commercial Bank of China.

The possibility that New York is losing ground has raised alarms in Washington and in Mr. Bloomberg's office.

"There's a genuine recognition that we need to make some changes," said Laure Aubuchon, head of international business development for the New York City Economic Development Corporation. Winning financial business is "so important to New York City," she said. The financial services industry makes up 9 percent of the city's work force and provides 31 percent of the tax base, she said.

The rise of London has been particularly notable as a reflection of its geography. Some of the most rapidly developing markets and fastest-growing companies can be found in Asia and Russia, which are within time zones that can do business easily with London but not with New York.

"In the 1980s and 1990s, large transactions did not get done without the United States capital markets," said Michael Cole-Fontayn, a managing director with the Bank of New York in London. That is no longer true, he said.

"The European and Asian capital markets are becoming deeper and more liquid by the day," he said. "You can get a $5 billion stock global depository receipt offering or a $10 billion privatization satisfied outside the United States S.E.C.-registered markets."

TMK, a Russian pipe manufacturer, hopes to raise $1 billion in a November public offering. The company was approached by the New York Stock Exchange but chose to list on the London Stock Exchange.

London "is the world's biggest financial center and very internationally flavored," Vladimir Shmatovich, the chief financial officer, said in a telephone interview. And, he said, London is a closer flight to Moscow.

Of course, Wall Street banks dominate London and have benefited from doing business with the new wealth of Russia, Asia and the Middle East. But because the banks do a growing amount of business outside New York, the city misses out on some of the taxes, the financial services jobs and the jobs that support those jobs.

Beyond its location, London is attracting investors and companies because of a perception that regulatory scrutiny is more burdensome in the United States than in London. At the same time, while London does not use the euro, that common currency has helped bring depth to the capital markets of Europe, benefiting London.

"At the moment, people are still arguing New York versus London," said Shaun Springer, the head of Napier Scott, a headhunting firm based in London that specializes in trading jobs. In five years, he predicts, "there will be a real, visible gap," with London taking the lead.

So far, the only financial arena where New York is clearly being surpassed is initial public offerings. This year, through the end of September, companies raised £17.9 billion ($33.2 billion) in initial public offerings on London's exchanges. In New York, initial public offerings raised $26.5 billion through September. By the end of 2006, more than $40 billion will be raised in Hong Kong, thanks to two oversize bank offerings. Hong Kong's leadership in public offerings is not expected to extend to 2007, when the battle between London and New York will be fiercer than ever.

Other trends seem to favor London. Syndicated lending grew 54 percent in Europe in 2005, but just 15 percent in the United States, according to Thomson Financial. Hedge fund assets in Europe grew 80 percent from 2003 to 2005, versus 28 percent in the United States, according to International Financial Services London, which promotes British banking business.

More from NYT http://www.nytimes.com/2006/10/27/business/worldbusiness/27london.html

 

[Bridgett]

Amen to that.

By the way, Bear Stearns has signed a deal of getting its new office building built in Canary Wharf. I think it's due somewhere around 2008

 

[DominiConnor]

There aren't many absolute factors, but relative terms instead.
London is better for "clever" transaction, NY for bigger. Quant finance is thriving hugely in London.
Wall St. is vastly more dependant upon the domestic economy than London, indeed by some people's view, financial services *are* the British economy, everything else being what we spend our money on.
If we add in history and geography, London is thus stronger in global activities, because big money is often not to be found at home. Thus the rise of China, India et al move the balance

Also the regulation in London is very business oriented, the two political parties arguing over who is best for the City, lacking entirely politically inspired litigation on the NY model.
Thus although there is a bit of anti-immigration feeling in both countries, the British government has set up and extended schemes to let in smart people, the US has policies that are neither business friendly nor efficiently administered, though of course Bloomberg would say none of these things, since some of the NY problems are his fault, and also one suspects he wants to get elected...
We call it the "Wimbledon" model. The big players in London, like in tennis are mostly foreign. Wimbledon, like London is thus a good place to play since the locals aren't going to get much favourable treatment. Protectionism always looks good at first...
One's money is still typically less good in London, except at the very top, but that seems to be changing, though it is painfully hard to make exact comparisons. I will let you into a secret, that *no* headhunter really knows what you're worth, even when you want to cross the street to do the same job at a similar firm.
The article captures a driver that everywhere east of London is a much worse place to do business because of corruption, protectionism and in the case of Moscow a serious risk of bodily harm.
Looking forward, I agree with the conclusions of the article.
Sarbanes Oxley has hurt NY, and there seems to be more where that came from.
America seems intent on economic sanctions as a key weapon in aggressive diplomacy, and financial markets are an easy button to press, but it makes it more tempting to not choose America to do business.

 

[Bridgett]

DominiConnor,

impressive insights and writing style!!

If you haven't done so, maybe you want to consider publishing this article of your own?!(At lest I enjoyed reading it very much! :smt023 )

Looking forward to seeing more valuable insights from you!!

 

[RussianMike]

Moscow? I was born in Moscow but I havent been back and would not want to go back . From what I heard about London it is more expensive than NY (strong GBP vs. USD). Of course if you make your money in GBP you should be ok. Dominic as always thank you for the insights.

 

[DominiConnor]

A lot of this stuff is going into the guide, which we're talking to Wiley about publishing.

I would be very interested to hear how Baruch students who aren't citizens make out with getting work permits etc.

 

[dstefan]

A lot of this stuff is going into the guide, which we're talking to Wiley about publishing.

Very good idea, it will definitely be a success!

I would be very interested to hear how Baruch students who aren't citizens make out with getting work permits etc.

For the December 2005 graduates, all the international students were employed in New York on practical training status with one exception, a student who had to go bakc to his home country as he was a Fulbright scholar. They are now getting H1 visas. The process seemed very smooth from where I was looking.

 

[Hien]

There aren't many absolute factors, but relative terms instead.
London is better for "clever" transaction, NY for bigger. Quant finance is thriving hugely in London.
Wall St. is vastly more dependant upon the domestic economy than London, indeed by some people's view, financial services *are* the British economy, everything else being what we spend our money on.
If we add in history and geography, London is thus stronger in global activities, because big money is often not to be found at home. Thus the rise of China, India et al move the balance

Also the regulation in London is very business oriented, the two political parties arguing over who is best for the City, lacking entirely politically inspired litigation on the NY model.
Thus although there is a bit of anti-immigration feeling in both countries, the British government has set up and extended schemes to letin smart people, the US has policies that are neither business friendly nor efficiently administered, though of course Bloomberg would say none of these things, since some of the NY problems are his fault, and also one suspects he wants to get elected...
We call it the "Wimbledon" model. The big players in London, like in tennis are mostly foreign. Wimbledon, like London is thus a good place to play since the locals aren't going to get much favourable treatment. Protectionism always looks good at first...
One's money is still typically less good in London, except at the very top, but that seems to be changing, though it is painfully hard to make exact comparisons. I will let you into a secret, that *no* headhunter really knows what you're worth, even when you want to cross the street to do the same job at a similar firm.
The article captures a driver that everywhere east of London is a much worse place to do business because of corruption, protectionism and in the case of Moscow a serious risk of bodily harm.
Looking forward, I agree with the conclusions of the article.
Sarbanes Oxley has hurt NY, and there seems to be more where that came from.
America seems intent on economic sanctions as a key weapon in aggressive diplomacy, and financial markets are an easy button to press, but it makes it more tempting to not choose America to do business.

I was reading about a related article about 2 weeks back. Hank Paulson believes the same, quoted below:

Paulson Pulls for U.S. Markets Treasury Chief Aims to Tweak Rules Some Say Are Crippling The Nation's Competitiveness
By DEBORAH SOLOMON
October 23, 2006; Page C1

WASHINGTON -- With just two years to make his mark, new Treasury Secretary Henry Paulson is focusing much of his attention on making American financial markets more competitive.

So far, his efforts have mainly involved meeting and jawboning. He is well-positioned to help tweak some rules, but his power could wane next year if Democrats make significant gains in the November elections.

Since taking the reins in July, the Wall Street veteran has reinvigorated the President's Working Group on Financial Markets, which had languished. He also has backed a private-sector effort to recommend changes to laws and rules that critics say handicap U.S. financial markets. And he raised business hopes that the government will ease a controversial rule created by the Sarbanes-Oxley law in response to corporate scandals.

Mr. Paulson is chairman of the Working Group, which coordinates government policy on financial markets and includes the heads of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission. Mr. Paulson has insisted that they meet about every six weeks. Before his arrival, the group met every few months and sometimes as infrequently as once a quarter.

"The issues that are natural for the President's Working Group to deal with are issues that he has thought a lot about while he was on Wall Street and to which he clearly has wanted to devote a lot of attention while he's here in Washington," said Randal Quarles, who recently stepped down as Treasury undersecretary for domestic finance.

The Working Group is a significant lever to influence policies outside the Treasury's bailiwick. The committee is "where he can have influence over the process and can shape the debate," said Rob Nichols, president of the Financial Services Forum, a group of chief executives from that industry that met with Mr. Paulson and President Bush last week. Mr. Nichols, a former Treasury spokesman, said Mr. Paulson talked about "what we can do to keep the U.S. economy competitive and keep the capital markets competitive."

Mr. Paulson's efforts are a response to a growing business concern that the regulatory and legal environment puts U.S. capital markets at a global disadvantage. Mr. Paulson often points out that more initial public offerings of stock are being issued on exchanges outside the U.S. Business leaders complain that the costs of doing business in the U.S. are increased by provisions of Sarbanes-Oxley, class-action lawsuits and a state and federal law-enforcement crackdown on corporate misbehavior.

The U.S. Chamber of Commerce on Friday held a public forum in Washington to publicize such issues. "If our capital markets become less competitive, the cost of capital rises, [stock] listings and investment opportunities go overseas," said David Chavern, the chamber's chief of staff.

Mr. Paulson is having the Working Group look at the systemic risk posed by hedge funds and derivatives, and the government's ability to respond to a financial crisis, officials said.

He has ordered his chief of staff, Jim Wilkinson, to oversee the creation of a Treasury command center to track markets world-wide and serve as an operations base in a crisis. The center would revive a market-monitoring room closed in a 2003 budget cut. Mr. Wilkinson has relevant experience: A former spokesman for the U.S. in Iraq, he was a White House aide during the Sept. 11, 2001, terrorist attacks.

Mr. Paulson, a former chief executive of Goldman Sachs who declined to comment for this article, has said the regulatory pendulum "may have swung too far" in response to corporate scandals. He is expected to sound the capital-markets-competitiveness theme in future speeches. He also has emphasized restraining the growth of federal spending, but that will require congressional cooperation, a particular challenge if Democrats take control of one or both houses of Congress.

The secretary doesn't need much congressional cooperation on other priorities, including persuading China to keep moving toward market capitalism and shoring up the competitiveness of U.S. capital markets through rule changes.

Much depends on his persuasiveness. The Treasury's jurisdiction is limited. The controversial Sarbanes-Oxley rule -- which requires that companies assess their internal controls to ensure their financial reporting is accurate and reliable -- was crafted by the SEC and the Public Company Accounting Oversight Board. Both plan revisions before the end of the year.

Mr. Paulson, aware of the ticking clock on the Bush presidency, wants to move quickly. He told the organizers of the private Committee on Capital Markets that he wanted recommendations by next month.

"He explained what the political cycle was and that Treasury would be thinking about this issue come the new Congress in January, and if we were going to have an impact on that process, we would want to get this out by end of November," said Hal Scott, a Harvard Law School professor who heads up the panel.

The committee includes business leaders and academics but not consumer or shareholder-rights activists. It will draft a report looking at legal-liability issues, the Sarbanes-Oxley rule, shareholding rights and the regulatory process, including whether the SEC should weigh costs and benefits more explicitly before adopting rules. Mr. Paulson didn't help create the group, but he called it "important to the future of the American economy and a priority for me."

Gary Gensler, an assistant secretary for financial markets in the Clinton Treasury, said Mr. Paulson should be careful how he wields his power.

"I think that we have very competitive markets and have had for a very long time," Mr. Gensler said. "That's not to say it's not worth looking, but I think the hallmark of the U.S. markets is efficiency tied with a set of clear rules. ... There's always pressure that comes from groups to roll something back. What would be a mistake, though, is to think we need some wholesale changes."