Michael Bloomberg, New York City’s billionaire mayor, worried last year that London might overtake the Big Apple as the world’s financial centre. Some thought it already had—partly because London’s capital pool seemed comparably deep and liquid, pushing equity issuance and mergers in Europe ahead of the US.
This shift could be accelerated by the credit crunch. At least in terms of job losses in investment banking, Wall Street stands to suffer more than London’s Square Mile and Canary Wharf.
Of course, before long there will be plenty of bankers and other financial whizzes wandering the streets of both cities with pink slips pinned to their pin-stripes.
Early forecasts suggest roughly 20,000 securities-related job cuts in each metropolis. It’s hard to see how the figures won’t be revised higher. Just two firms—Bear Stearns Companies Inc., now in JPMorgan Chase and Co.’s embrace, and ABN Amro Bank NV, recently acquired by Royal Bank of Scotland Group Plc. and others—are expecting at least 7,000 layoffs each.
Those at Wall Street are at greater risk for several reasons. For one, even though British and European banks have suffered subprime mortgage woes, the loans were originated by US counterparts and mostly packaged by bankers with views of the Hudson or the East River, not the Thames. Similarly, in leveraged finance, a much bigger chunk of US deal volume depended on private equity buyouts.
Second, areas where the action remains hot tilt toward London. Both cities will benefit from resilience in commodities, currencies, interest rates and prime brokerage. But the Russian mining groups looking to go public and West Asian sovereign wealth funds spending their petrodollars are more likely to turn to the city.
Finally, many US investment banks were already relocating some division heads and other top brass from New York to London. That process could pick up pace, meaning those on Wall Street who don’t get the sack might have to pack—leaving yet more empty desks in Gotham.