# Financial centres are booming



## krull (Oct 8, 2005)

*FINANCIAL CENTRES: Magnets for money
Financial centres are booming, despite predictions that new technology would spell their doom*












THE late Middle Ages were a golden age for city-states. Merchant guilds created a network of them that dominated trading along the Baltic and North seas for centuries. Cities such as Lübeck, Hamburg and Bergen flourished in this early form of globalisation.

In time, the early 21st century may come to be seen as a golden era for a different sort of globalised city-state. Its protagonists are found in London's Mayfair, lower Manhattan and Hong Kong's central business district. Rather than loading ships, they spend their days (and many nights) in front of computer screens, moving zillions of dollars, pounds, euros and yen around the globe at the flick of a key.

Technology, some predicted, would end this sort of clustering in city centres. Why would financiers want to live and work in pricey, jam-packed urban jungles? Armed with broadband, mobile phones and BlackBerries, they could work from almost anywhere. Yet as this summer's market turmoil showed, a BlackBerry operated from a beach is not always enough. Besides, those urban jungles have their compensations. So rather than dying out, financial centres are proliferating.

Today's financial centres—the cities where big financial transactions are done and a dizzying array of financial products are traded—include not only long-established places such as New York, London and Tokyo, but also a growing number of newer financial hubs in Asia, the Middle East and beyond. As Dubai has shown, following in Singapore's earlier footsteps, a determined government can build an international financial centre from scratch.

Unlike the walled medieval city-states, today's financial centres are increasingly dependent on their connections to one another. Technology, the mobility of capital and the spread of deregulation around the globe have created a vibrant and growing network. When one city is asleep, another is wide awake, so trading goes on round the clock. The number of transactions between financial centres has surged recently as investors have diversified across regions and asset types.

Yet interconnectedness has a cost. In an era of greater volatility, the latest market news spreads from one continent to another in an instant, as financiers have recently been reminded; and knock-on effects on things like bonuses and property prices soon follow.

New York and London have firmly established themselves at the top, but not even the biggest centres can afford to be complacent. New York, still number one in global financial terms by many measures (see chart 1), has recently acknowledged the competition it faces from other centres. London has surged on a wave of new money and talent, but needs to resolve problems of its own. Some cities that once aspired to global status have lost their edge, and new ones are starting up.

Michael Klein of Citigroup cites two big changes that have encouraged the proliferation of financial centres around the globe: the shift of economic activity and jobs towards China, India and other developing countries, and growing demand for natural resources from the Middle East, Russia and parts of Latin America. The resulting shift in liquidity is “one of the greatest transfers of economic activity and wealth in the past 100 years,” says Mr Klein. With barriers to trade falling in many developing countries, the cost of capital has also fallen dramatically.

These changes have made governments in emerging countries more conscious of the benefits of a strong financial sector. More capital and more jobs are good for social and economic stability, so countries that used to rely for capital on banks, the rich or the state are allowing new capital providers into their markets. Money that used to be routed through the world's biggest hubs now often goes through non-traditional capital markets, or directly between emerging markets.

Although financial hubs have proliferated, few of them can claim to be truly global. Many members of the financial community feel that only New York City and London deserve this title. Both are one-stop shops for a full range of financial services. Any big financial organisation has to be represented there. From investment banking to insurance, stocks to derivatives, everything can be found in the world's two pre-eminent financial hubs.

What do they have that others don't? They score well on a package of key criteria that global financial firms are looking for: plenty of skilled people, ready access to capital, good infrastructure, attractive regulatory and tax environments and low levels of corruption. Location and the use of English, the language of global finance, are also important. Based on those measures, a survey by Z/Yen, a consultancy, picks London, New York and Hong Kong as the world's top three financial centres.

Finding and retaining good people has become an ever more important factor. Steven Kaplan and Joshua Rauh, a pair of economists at the University of Chicago, reckon that capital deployed per employee (the amount of money firms have invested divided by the number of staff) at the top 50 American securities firms surged from an average of $136,000 in 1994 to $1.79m in 2004. For many skilled professionals who can pick and choose their place of work, quality of life matters a lot.

Although New York and London are pre-eminent, other big cities play important international roles of their own. Some have prospered as the financial capitals of big national markets (Tokyo and Sydney) or the gateways to emerging regions (Hong Kong, Singapore and Dubai). Others have found success in niches. These include Geneva (private banking), Zurich and Bermuda (insurance and reinsurance), Chicago (futures and options), Qatar (infrastructure finance) and Bahrain (Islamic finance). Yet many of these, too, are trying to diversify.

Governments are paying more attention than ever to wooing and keeping financial firms because of the benefits they bring with them, such as highly paid jobs, large tax revenues and international connections. In New York and Hong Kong the financial sector accounts for more than one-third of total city tax revenues. In smaller centres it often makes up a large chunk of total employment.

Aside from the political and economic gains to the host countries, economists and investment bankers point to two wider benefits from having a range of financial centres around the world. One is the increase in overall liquidity as new countries and regions become integrated into the global financial system. The second is increased efficiency as competition between centres drives down the cost of trading and other financial transactions. New and developing financial centres are knocking down protectionist barriers and emulating the regulatory practices of the more established hubs.


*Making connections*


The city-states that dominate today's financial world are connected not only by mobile capital and people, but increasingly by exchanges too. Exchanges have traditionally been at the heart of important financial cities. They grew up serving mainly national markets, but have changed fundamentally in recent years. A growing number are now publicly owned, which has forced them to shed their clubby ways and compete more openly.

Now they are teaming up across national borders. The first ever transatlantic merger between exchanges took place earlier this year when the New York Stock Exchange bought Euronext, a pan-European exchange group. The deal is being closely watched as a precursor to further cross-border consolidation. The London Stock Exchange is merging with Borsa Italiana, Italy's main market. Deutsche Börse is teaming up with the International Securities Exchange in New York. The big exchanges in Western countries are linking up with counterparts farther east as well, from the Dubai Mercantile Exchange to the Tokyo Stock Exchange.

This consolidation raises questions about the future relationship between exchanges and global financial centres. Exchange listing fees and affiliated services are a big source of income for host cities. Exchanges are also seen as important political prizes. But the rapid growth in cross-border trading has made life more difficult for national regulators.

This special report will examine the factors that create and sustain global financial centres and explain why physical financial hubs—teeming with banks and exchanges but also with legal, accountancy and public-relations firms and consultancies—continue to matter so much. It will also consider what their rise means for the global financial system, and how it is changing the cities that are home to these clusters.












Copyright © The Economist Newspaper Limited 2007


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## Jaeger (May 11, 2006)

*City of London - Facts*

$1,109bn foreign exchange turnover each day in London (32% global share) 

40% of the global foreign equity market 

70% of all eurobonds traded in London 

20% of international bank lending arranged in the UK (largest single market) 

The world's leading market for international insurance. UK worldwide premium income reached £167 bn in 2005 

416m contracts a year traded on London’s international futures exchange Euronext.liffe 

£3,450bn total funds under management in the UK in 2005 

£1,301m in overseas earnings generated by the maritime industry in London in 2004 

£1,607bn pension fund assets under management (third largest in the world) 

$643bn daily turnover in ‘over the counter’ derivatives (43% of global share)

80% of the $8bn EU Emissions Trading Scheme 

75% of Fortune 500 companies have London offices 

610 foreign companies listed on the London Stock Exchange (LSE) 


Financial Times - City/Country Comparisons - 

http://www.ft.com/indepth/newcity/facts

The Financial Times is correct to note that more money is now managed in London than in the four top American financial centers combined, including New York.

http://www.manhattan-institute.org/email/crd_newsletter11-06.html

http://www.economist.com/finance/displaystory.cfm?story_id=8058157

The City is the world leader in Insurance, Currency Trading, Equites, Bonds, Fund Management and most financial industries.

http://www.london.gov.uk/london-life/business-and-jobs/financial-centre.jsp

London has some of the best financial minds, knowledge and expertise.










London has more Foreign Banks than any other City in the World, and is home to a massive percentage of the Worlds Largest Companies.

The City of London now has a financial workforce of 350,000, whilst Canary Wharf now has nearly 100,000, making it as large as Frankfurt (it's next biggest European Rival). The City is curently building more office space, with capacity for another 50,000 employees, and Canary Wharf is also building at a rapid rate.

However the City is itself expanding (beyond the square mile) in to it's fringes, with parts of areas such as Spitalfields, Holborn and Finsbury etc becoming extensions of the city.

The City has also expanded to the west. Hedge funds have plumped for boutique offices in the choicer parts of the West End, the new Paternoster Square is on the Western Fringes of the City, and areas such as Fleet Street have become home to large International Banks such as Goldman Sachs. 

Recent News:

Another hedge fund opts for Regent Street; a hedge fund- Och Ziff Capital Management- has set a record for rental levels on Regent Street by taking the second floor of the old Dickins and Jones building at more than £90 per sq ft for the 26,000 sq ft space. Ironically the previous highest rent was also a hedge fund in the form of Bridgepoint Capital who sublet the top floor of 30 Warwick Street, which has frontage onto Regent Street, where they agreed to pay £62.50 per sq ft 18 months ago. 

Estates Gazette 18.08.07 



> Canary Wharf
> 
> 
> 
> ...


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## LLoydGeorge (Jan 14, 2006)

The following quote from The Economist article was interesting:

....New York and London have firmly established themselves at the top, but not even the biggest centres can afford to be complacent. *New York, still number one in global financial terms by many measures (see chart 1), has recently acknowledged the competition it faces from other centres.* London has surged on a wave of new money and talent, but needs to resolve problems of its own.....










Copyright © The Economist Newspaper Limited 2007[/QUOTE]

I read this article in _The Economi_st and was amazed at how NY dominates so many areas. In this global economy, it's really amazing.

Anyway, HK likely will surpass NY and London in the future. It is ahead of NY and Lon. in terms of IPOs this year, although that one area admittedly is not dispositive of things.


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## Jaeger (May 11, 2006)




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## LordMandeep (Apr 10, 2006)

true almost all of Toronto downtown office growth is from the Financial sector.


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## Filip (Oct 10, 2003)

LordMandeep said:


> true almost all of Toronto downtown office growth is from the Financial sector.


I'm surprised the Economist did not include Toronto.

I'm 100% sure its financial sector is far larger than for example Geneva, Zurich or Dubai
Actually, for the 6th largest stock exchange, and a downtown almost entirely dedicated to financial services it's surprising!


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## Skyman (Jan 4, 2006)

They didn't include many large financial centers


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## secondcity1 (Dec 28, 2006)

Although its not the financial capital of the world, *Chicago is the biggest financial market in the world* thanks to the recent merger between CME and CBOT

http://www.cnbc.com/id/20485132/site/14081545/ (Courtesy of The Urban Politician)

Trader Magazine also rated Chicago #1 in the world among other trading cities

http://www.worldbusinesschicago.com/Portals/0/TraderMonthlywCities.pdf


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## Minato ku (Aug 9, 2005)

Wow, Paris has over 300,000 employements and a GDP over $100b linked with finance.


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## HirakataShi (Feb 8, 2004)

It's amazing how relatively few people are employed by the financial sector in Tokyo compared to all the other cities. Only 3.8% of employment in Tokyo is in finance.


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## hkskyline (Sep 13, 2002)

Filip said:


> I'm surprised the Economist did not include Toronto.
> 
> I'm 100% sure its financial sector is far larger than for example Geneva, Zurich or Dubai
> Actually, for the 6th largest stock exchange, and a downtown almost entirely dedicated to financial services it's surprising!


The Canadian banking industry plays a very minor role in world markets though. In terms of size, each Credit Suisse and UBS drawfs several large Toronto-based banks put together.

The TSX also isn't purely a bank-dominated exchange either. There is a huge mining/resource presence.


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## Jaeger (May 11, 2006)

LLOYD GEORGE said:


> I read this article in _The Economi_st and was amazed at how NY dominates so many areas. In this global economy, it's really amazing.
> 
> Anyway, HK likely will surpass NY and London in the future. It is ahead of NY and Lon. in terms of IPOs this year, although that one area admittedly is not dispositive of things.


London dominates just as much as NY, Bloomberg even set up a special committee to try and emulate London's success.

http://www.manhattan-institute.org/email/crd_newsletter11-06.html

As for HK it's in a different time zone and competes with far eastern cities such as Tokyo for much of it's equity and other trading.

London - http://www.london.gov.uk/london-life/business-and-jobs/financial-centre.jsp



> London to overtake New York and rival Silicon Valley
> June 11, 2007
> 
> http://www.newscloud.com/read/London_to_overtake_New_York_and_rival_Silicon_Valley
> ...


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## clive3300 (Dec 30, 2006)

Isnt the use of just "The City" for London a little arbitrary for comparison? There are plenty of financial companies and employees outside of this area: Canary Wharf and throughout the metro in fact.

I suppose they just used what figures they have, but it doesnt give the reader any indication of economic clout of the cities, unless explicitely trying to compare how a few hundred city blocks of central London can compete against entire metros (or entire metro and surrounding countryside in the case of Paris).


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## Minato ku (Aug 9, 2005)

No, because all the financial jobs of Paris are in the CBD and la Defense.
and the city has only 350,000 employements, so I don't understand the 7.5%.


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## Jaeger (May 11, 2006)

minato ku said:


> No, because all the financial jobs of Paris are in the CBD and la Defense.
> and the city has only 350,000 employements, so I don't understand the 7.5%.


It includes the whole of New York, but only the City of London which is just one square mile out of Greater London's 609 Square miles.

For those who don't understand what the City means 'it is a historical area of London which stretches over one square, it does not include the West End or any of the upmarket areas usually associated with London, and is only one tiny corner of London as a whole'. 

Canary Wharf has another 100,000 Financial Jobs and City Hedge Funds are increasingly using lavish offices in the West End.

Rather ironically BNP Paribas, a Big International French bank employs
3100 people at Marylebone (West London), but these are counted. Companies have massive financial offices throughout London, and not to count Canary Wharf where some of the biggest banks HQ's in the world are based is shameful - HSBC have their global HQ there.


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## Minato ku (Aug 9, 2005)

Execpt that the 7.5% is wrong, because the city of London doesn't have 4.6 million jobs.


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## eklips (Mar 29, 2005)

Bad news for the world as a whole, or at least the societies on which these financial centers have influence on hno:


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## Jaeger (May 11, 2006)

minato ku said:


> Execpt that the 7.5% is wrong, because the city of London doesn't have 4.6 million jobs.


7.5% of 8 Million is not 4.6 million, 10% would be 800,000, take way a quarter and that would bring it down to 600,000, which is still wrong but a more realistic figure.

I would suggest that around half a million people now work in the financial sector in London as a whole.


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## Minato ku (Aug 9, 2005)

Nope it is 7.5 % of 4.6 million, so 350,000 employements. Te city has 7,5 % of Greater London jobs.

I agree that London has more financial jobs than Paris, but don't take false figure.


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## Jaeger (May 11, 2006)

minato ku said:


> Nope it is 7.5 % of 4.6 million, so 350,000 employements. Te city has 7,5 % of Greater London jobs.
> 
> I agree that London has more financial jobs than Paris, but don't take false figure.


Greater London has a population of nearly 8 million, the City (the 'square Mile') has a population of 9000 (people living in it). Where you get 4.6 million from is beyond me. The last figure quoted for Greater London was 7.78 million, and Greater London is predicted to smash the 8 million barrier within a few years.

350,000 people are employed in finance in the City of London, nearly another 100,000 at Canary Wharf and throughout London there are many many more, with Hedge Funds choosing offices in the West End and the increasing use of the city fringes. Over the 500 Foriegn banks in London, only 230 are in the City 'Square Mile'.


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