Pitting an enervated Brit against a brash, self-confident Yank is a frequent theme in post-World War II, post-Empire British literature, appearing in spy thrillers by John LeCarr? as well as in more serious novels by the likes of Graham Greene and Ian McEwan. However cultured, articulate or cynical, their British characters are strangely cowed, or awed, by the drive and vitality of their trans-Atlantic cousins.
It may be a shop-worn clich?, but it seems relevant when British government officials, market regulators and financial markets professionals discuss the recent McKinsey report on the future of New York City as the finance capital of the world, commissioned by New York Mayor Michael Bloomberg and Senator Charles Schumer.
On the one hand, they find it hard to conceal exultance and almost childish pride. The report, which came out earlier this year, warns that the Big Apple’s dominance in financial services is facing a stiff challenge from London — so much so that it may lose its global leadership position within a decade. And, if this weren’t enough in and of itself, it presents the U.K. experience as something the United States should consider following.
During a recent trip to London, no host official could resist for long mentioning “the McKinsey report.” But their triumphalism was not always unalloyed. “The McKinsey report means that the gloves are coming off,” says Anthony Belchambers, chief executive of the City’s Futures and Options Association, an industry group whose members include all of the world’s top financial institutions.
But Wall Street may at last be waking up to the threat posed by London, and this is bound to make life more difficult for the British capital going forward.
So far, it has been a highly successful run — all the more so since it came about unexpectedly.
In the early and mid-1990s, the City of London, Britain’s ancient financial hub, appeared to be on the ropes. The pound was reeling from a disastrous devaluation in 1992, which was when George Soros’ Quantum Fund famously appropriated $2 billion of Bank of England money in a single weekend. The London real estate market was depressed and the newly built Canary Wharf financial center was in bankruptcy. On the continent, Frankfurt was emerging as the financial capital for the new single European currency, the euro. Next door, Dublin was fast luring away financial service companies with tax breaks, cheap office space and a reasonably priced, English-speaking workforce.
Yet, today’s London is Europe’s unchallenged financial capital. It has definitively outstripped all of its European competitors and now competes directly with New York and Tokyo, says Michael Charlton, chief executive of Think London, the city’s investment promotion agency.
“We like to think it is the most international of the three,” he says.
It’s Charlton’s job to say this, of course, but in some ways London has indeed started to outstrip New York. It has long been the global leader in foreign exchange trading, Eurobond issuance and commercial insurance. Adding to this is a dramatic success in attracting international listings to the London Stock Exchange and in revitalizing derivatives trading on the London International Financial Futures and Options Exchange (Liffe).
Last year, companies raised 29.4 billion pounds, or nearly $58 billion, in initial public offerings on the LSE. To put this sum in perspective, it is nearly 50 percent more than was raised on the New York Stock Exchange, and almost as much as on the Big Board and Nasdaq combined. Whereas in the late 1990s, New York was an unquestioned leader in global IPO issuance, London is now running neck and neck — and pulling ahead of New York in attracting foreign companies. The LSE’s Main Market, where established companies list, saw 30 international IPOs in 2006. At the same time, AIM, an alternative investment market created in 1995 to list small and emerging companies, attracted 77 foreign IPOs, including 21 companies based in the United States. LSE now claims that AIM, established in 1995, is the world’s most successful growth market.
It is definitely a sign of LSE’s success that Nasdaq made a hostile bid for it — which was clamorously rejected earlier this year. NYSE, on the other hand, is taking over London-based Euronext-Liffe, which in addition to the futures and options exchange consists of four continental bourses, the national stock markets of France, the Netherlands, Belgium and Portugal.
The City is also now a true hub for global financial companies. According to Alderman John Stuttard, the Lord Mayor of the City of London, over 200,000 foreign nationals from all over the world now work in the city’s financial services sector.
Since London is a gateway to Europe, most top and even second-tier financial institutions will need a presence there. Just because Merrill Lynch or Citibank are expanding their staffs in London poses no threat to New York, admits Think London’s Charlton.
However, it can become a zero-sum game when already established companies choose from which location they want to run their international business. In some cases, London is starting to win business from New York City. Moreover, a growing number of hedge funds and private equity companies now choose to run out of London.