2 Presentation Overview Overview & Background of Financial CentersSkilled PersonnelRegulatory EnvironmentBusiness InfrastructureAccess to CustomersBusiness EnvironmentGovernment ResponsivenessCorporate Tax RegimesCorporate Tax RegimesOperational CostsProfessional ServicesQuality of Life FactorsCulture & LanguageCommercial PropertyPersonal Tax RegimeFinal RankingsKey Trends & Conclusions
3 Overview Global Financial Center: “…business is conducted between organizations from all over world using financial instruments from all over the world.”
4 Overview (cont’d) Global Financial Centers Regional Financial Centers LondonNew YorkRegional Financial CentersParis*Frankfurt*A third Global Financial Center?Asia*Paris and Frankfurt are expected to remain national centers and not expand to global financial centers.
5 Overview (cont’d) The City of London’s Appeal Cosmopolitan status DiversityNot just a “place for domestic participants to which foreign players are granted access.”Trading cultureHistory of openness and welcoming foreign tradersLocation between US and Asia
6 Overview (cont’d) Problem of outsourcing/off-shoring Loss of commoditized, low-cost jobsRetention of key factors:Company headquartersKey skilled employees (e.g., executives and managers)Value-added activitiesProduct innovationStrategic managementDeal making activities
7 Background (cont’d) Financial Services Industry in the UK 5.5% of GDP Over 1 million employedLargest trade surplus in financial services ($25.3B)Vast majority of UK financial services is in LondonCan The City of London remain a global financial center?
8 Global Cities Alpha World Cities Beta World Cities Gamma World Cities 12 points: London, New York, Paris, Tokyo10 points: Chicago, Frankfurt, Hong Kong, Los Angeles, Milan, SingaporeBeta World Cities9 points: San Francisco, Sydney, Toronto, Zurich8 points: Brussels, Madrid, Mexico City, Sao Paulo7 points: Moscow, SeoulGamma World Cities6 points: Amsterdam, Boston, Caracas, Dallas, Dusseldorf, Geneva, Houston, Jakarta, Johannesburg, Melbourne, Osaka, Prague, Santiago, Taipei, Washington DC5 points: Bangkok, Beijing, Montréal, Rome, Stockholm, Warsaw4 points: Atlanta, Barcelona, Berlin, Buenos Aires, Budapest, Copenhagen, Hamburg, Istanbul, Kuala Lumpur, Manila, Miami, Minneapolis, Munich, Shanghai
9 What is a Global Financial Center? “A global financial centre is an intense concentration of a wide variety of international financial businesses and transactions in one location.”Hamilton, Bermuda?International financial centre for reinsurance, but not a global financial centerSydney?Australia’s international financial center, but not a global financial center
10 Choosing a Financial Center Competitive FactorsSkilled laborRegulatory competenceTax regimeGovernment responsivenessRegulatory “touch”Living environment
11 Availability of Skilled Personnel Most important factor in the competitiveness of an international financial centerLondon & New York: Rating of Good or Excellent from 98% of respondentsLondon Excellent: 75%New York Excellent: 66%
12 Availability of Skilled Personnel (cont’d) 365 responses; Survey encompassed 18 countriesBetween June & October 2005
13 Availability of Skilled Personnel (cont’d) Average score: derived from respondents’ views of how each financial center ranks on the Availability of Skilled Personnel multiplied by their views on the perceived importance of the Availability of Skilled Personnel as a competitive factor
14 London as a Centralized Location Series of 27 interviews, senior personnel in investment bankingFindings: “London was the only place in Europe to centralize their operations because of the flexibility of the labor market.”
15 Findings ContinuedInterviewees thought that London was unique in that people really wanted to work in financial services whereas in other locations it was “just another job”.London is seen as having high employment costs although some of the add-on costs are significantly less than other European centers. One of our interviewees said that he felt the high cost was offset by the quality of staff
16 Regulatory Environment 2nd most important factor in the competitiveness of a financial centerOpinion: Much better than Paris or Frankfurt, similar to New York City
18 Regulatory Environment (cont’d) Recent Study: Banking Community in London sees excessive regulation as the most significant risk to financial services currentlyCountering Argument: Generally the Financial Services Authority (FSA) is well regarded and people see benefit if there is only being one main regulator that oversees the financial services industry in London
19 Regulatory Environment (cont’d) USA Regulation: Based on clear defined roles; “prescriptive”FSA: Risk-based approach; seen as more flexible and welcomed by respondents
20 Access to International Financial Markets 3rd most important factor overall44% of respondents felt that access to financial markets was Critically Important and a further 34% felt it was Very Important.
21 Access to International Financial Markets (cont’d)
22 Access to International Financial Markets (cont’d) Paradox: Do not need to be close to markets to access them, however financial institutions still locate near them.Geographical proximity to customers and suppliers which creates a business cluster
23 Availability of Business Infrastructure 4th most competitive factorComprised of several components including:telecommunicationsIT infrastructuretransportation links
24 Availability of Business Infrastructure (cont’d)
25 Availability of Business Infrastructure (cont’d) London & New York at 70% ranked Excellent compared to Paris & Frankfurt at 20%Counterargument: the main financial centers have a good infrastructure and it is therefore probably not a strong competitive factor
26 Access to Customers 5th most important factor overall 92% of respondents thought access to customers was Important, Very Important or Critically Important
28 Access to Customers (cont’d) London and New York have a clear advantage over Paris and Frankfurt in this area.“We have offices in cities where our clients are – simple as that.” Partner, London-based Accountancy Firm.
29 Fair and Just Business Environment (cont’d) 6th most important factor in the competitiveness of a financial centersUsually taken for granted.
30 Fair and Just Business Environment (cont’d) Main components:The Legal SystemPersonal TrustworthinessTemptation to break rules
32 Government Responsiveness 7th most important factor in the competitiveness of a financial centerThe best sort of government for financial services is one that does not interfere with what we’re doing. – Senior Trader – Global Investment Bank based in Frankfurt.
36 Operational Costs9th most important factor in the competitiveness of financial centersRelocation or off-shoring of routine tasks has reduced importance of operational costs for global financial centersThese tasks typically account for a high percentage of an organization's operating costs
37 Access to Suppliers of Professional Services 10th most important factor in the competitiveness of global financial centersI only consider two cites as the real international centres – New York and London – they have all the infrastructure, all the services and frankly all the action. – Director - NY-based Global Investment Bank.
38 Access to Suppliers of Professional Services (cont’d) Providers of professional services to the financial institutions (lawyers, accountants, consultants) will tend to cluster around those institutions.
39 Access to Suppliers of Professional Services (cont’d)
40 Quality of Life Factors: Leisure Facilities & Culture – Important Healthcare – Very ImportantSchools – Very ImportantTransportation System – Very ImportantResidential Property – Very Important
41 Quality of Life (con’t) Key Issues:2012 OlympicsTerrorism & Transportation System
42 Culture & Language Very Important factor as a global financial center Most people under rate its importance – London excels in this category due to its international diversity
43 Culture & Language (cont’d) Key Issues:Connection with both U.S. and Asian MarketsEnglish is primary global business languageMany other languages are spoken in London
44 Quality & Quantity of Commercial Property Considered important but not critically importantUsually only important to a business when:There is no suitable accommodations in the city where the business needs to beThe business is considering relocation to the city
45 Quality & Quantity of Commercial Property (cont’d) Key Issues:Was a problem in London before Canary WarfTypically shortages in commercial property result in new commercial developments
46 Personal Tax RegimeLowest level of importance for companies but not individualsMost sophisticated business people can manage their tax affairs to take advantage of rules and regulations
47 Personal Tax Regime (cont’d) Key Issues:Most high level executives and financial professionals can live any where and can choose the most advantageous tax regime
49 Competitiveness and Concerns London is in a very strong competitive positionNot likely to become more competitiveFuture ConcernsGovernment responsivenessTax regime (both personal and corporate)Lowest ConcernsBusiness infrastructure and access to international markets
50 Two Global Financial Centers London and New York will continue to leadCompared to France and Germany, London has more flexible employment practices“If you are in global financial services you need to have a presence in London and you need to have a presence in New York” – Managing Director – Global Bank
51 Conclusions London is one of two genuinely global financial centers Other financial centers are national playersShanghai maybe become a third global centerCompany headquarters will continue to cluster in financial centersOutsourcing will move commoditized activities to low cost cities
52 Conclusions (cont.) Most competitive factors Availability of skilled laborSupportive regulatory environmentAdvantage of the “Network” effect / Critical massThe more participants, the more liquidity, the lower the costsOnce established, market liquidity is hard to moveEstablished centers of finance are difficult to move once established
53 References“The Competitive Position of London as a Global Financial Centre”, Corporation of London, Nov. 2005Wikipedia – City of London -Key Facts of the City of London -