Quick, what’s the financial capital of the world? London or New York?
The numbers support the City. A new index ranking the world’s top 46 financial cities puts London just ahead of New York on all five areas of competitiveness examined: people, business environment, market access, infrastructure and general competitiveness. The report stresses that the disparity between London and New York is widening in the City’s favour.
The Global Financial Centres Index, conducted by consultants Z/Yen for the City of London Corporation, says commercial property prices are not hindering London’s progress but it highlights “widespread concerns” that the UK tax regime could limit the City’s competitiveness relative to its nearest competitors.
A report commissioned by Michael Bloomberg, mayor of New York, and released last January, also cast doubt on the Street’s predominance. If current trends continue, the McKinsey report said, New York could lose up to seven percentage points of its market share, equivalent to up to 60,000 jobs, over the next five years.
And last year, for the first time, more money was raised on the LSE than on the NYSE and Nasdaq. The report suggested New York has also been losing out in other areas, such as derivatives, where Wall Street chief executives say they have been shifting business to London, which they say has a more attractive legal and regulatory environment.
But not everyone is convinced. FT columnist John Gapper, writing for New York magazine, highlights some of the dissenting voices.
“Some skeptics suspect that New York’s bankers are exploiting the specter of London’s growth to sweep away regulations they did not like anyway. They even say that New York may be better off without some of the companies, and the investors, that have flocked to London,” he writes in the special London vs New York issue.
He quotes Jeffrey Garten, professor of international relations at Yale University, who dismisses the quality of London’s IPOs. “When you analyze why London is getting more than its share of IPOs, you realize that a lot of them really should not be listed in the U.S., given our tradition of investor protection. Many come from emerging markets, particularly Russia and China. By any standards, they lack accounting rigor and transparency,” says Garten.
In January, the New York Post reported that while London had outperformed the NYSE in 2006, British regulators were also having to deal with a 40 per cent spike in business fraud [via DealBook]. Citing a report by BDO Stoy Hayward, the Post said problems such as stock swindles and profit-rigging had cropped up in increasing numbers, at a cost of at least $2.7bn.
But the Post acknowledged that BDO “stopped short” of blaming the rise in fraud on the companies that have flocked to the LSE or the Aim junior market, which has even more flexible requirements.
Gapper concedes that London is certainly exotic. “After the US security crackdown following 9/11, billions of dollars in Middle Eastern oil money were transferred to London, and many Russian and eastern European billionaires also hold assets there,” he writes. “So investors …are probably better protected in New York. But that is not everything. London has taken the qualities associated with New York—openness to immigrants and unfettered free enterprise—and stretched them beyond what even the U.S. now tolerates. New York can look parochial by comparison.”
John Thornton, a former Goldman Sachs president and now chairman of the Brookings Group, said the Street’s problems run deeper than its regulatory framework. “The single biggest issue is the hardest to change,” he said. “Americans as a culture are insular and essentially hold the point of view that the way we do things is the best.”
Gapper thinks they ought to worry more, since these days, London beckons.
[For more on London vs New York - on everything from transport to fashion to real estate - click here for the New York mag special issue]
