Seven years ago, a report commissioned by Michael Bloomberg, New York’s then mayor, warned the city was in danger of being dethroned as the world’s financial capital by London.
New York was becoming less attractive as a place to do financial services business because of a mixture of excessive litigation, stifling regulation and restrictive immigration rules, according to about 50 chief executives interviewed by McKinsey for the study. London, by contrast, was exerting a pull on banks and investment houses as British politicians trumpeted the capital’s “light touch” regulation.
Six years on from the collapse of Lehman Brothers, both financial centres are transformed. Banks on both sides of the Atlantic were floored by the crisis, but, having taken risk off their balance sheets, are now bouncing back.
Regulators, meanwhile, have toughened their safety and soundness requirements and, particularly in the US, are on a mission to extract maximum penalties for past misdeeds.
Where does that leave the head-to-head battle between New York and London? Which financial centre is in the ascendancy? And will Asia’s hubs in Hong Kong, Singapore and Shanghai steal the global crown?
For now, the largest New York-listed banks by market capitalisation dwarf their London-listed rivals and the city remains the undisputed global king of equities.
Its two stock exchanges – NYSE, which this month hosted the Alibaba initial public offering, and Nasdaq – have held IPOs that raised a combined $77bn so far this year, or 41 per cent of the $186bn raised globally, according to Dealogic. London raised just over $25bn, for a share of 14 per cent.
Christian Meissner, global head of corporate and investment banking at Bank of America Merrill Lynch, says the world’s deepest capital markets are in New York.
“As much as London might think it’s the financial centre, I think New York is still ultimately the centre of the financial system.”
“It’s the dollar, it’s the Fed – it’s because US capital markets and the US economy are the deepest, it has the largest number of big companies.”
Mr Meissner says London is a close second.
“If you’re doing business in Asia and the emerging markets, London is much more convenient. It has the timezone and is the most global.”
Xavier Rolet, chief executive of the London Stock Exchange Group, insists that overall the City of London is clearly the world’s leading international financial centre. And the recent spurt in the UK’s economic fortunes have given it another boost.
“In the last two years, the regulatory and fiscal measures introduced by the UK government to recalibrate [small business] funding around risk and equity capital have nurtured a tech revolution which has helped fuel an impressive economic and jobs recovery,” says Mr Rolet, pictured. “Ensuring that these minnows succeed on the path from ‘start-up to stardom’ is one of LSE’s priorities.”
The UK dominates in currency trading and over-the-counter interest rate derivatives, accounting for 41 and 49 per cent of turnover in each market, respectively, according to the Bank of International Settlements.
By contrast, the US has a 19 per cent share of currency trading and 23 per cent of OTC interest rate derivatives.
London recently became home to the first clearing bank outside Asia for the renminbi, boosting its attempt to be the leading offshore trading centre in the Chinese currency.
“London has a huge timezone advantage,” says Kevin Burrowes of consultants PwC. “It remains the biggest foreign exchange market because of the ability to trade with east and west in the course of a normal business day”.
So far, at least, new European restrictions on bonuses have not undermined London dramatically, with no wholesale shift of financial services jobs away from the UK, either to New York, or Asia.
After dipping during the crisis, the total number of banking jobs in London broke through pre-crisis levels last year, hitting 147,100, according to a survey by industry group TheCityUK. That took total financial services jobs in the city, including finance and fund management, to a record 367,300.
Though like-for-like figures are difficult to come by, estimates from the New York State Department of Labor suggest the city has 502,400 finance and insurance jobs – 8 per cent lower than the sector’s employment peak in 2007.
Even so, the bonus pool for employees at New York securities firms last year was at its largest since 2008 – at $26.7bn, up 15 per cent on 2012, against the £14bn ($22.9bn) paid out across the UK’s insurance and finance sectors as a whole.
There are anecdotal suggestions that the impact of new bonus rules and other regulatory pressures has yet to feed through fully: 90 per cent of senior City staff now say they are willing to move abroad, up from 77 per cent last year, according to a survey by recruitment company Astbury Marsden.
New York wins the super-rich contest – it has 98 dollar billionaires to London’s 55, according to estimates by WealthInsight.
A recent survey conducted by Wealth-X, a research company, and UBS, the Swiss bank, also found that New York was the home of the biggest number of billionaires – 103 – followed by Moscow (85), Hong Kong (82), and London (72).
There is a soft appeal to both London and New York, says Sir Martin Sorrell, the British chief executive of advertising group WPP, who spends about 100 days a year working in each city.
He says the longer commutes and earlier workday start times in New York can be frustrating, but that both cities have “superb” cultural offerings and are making strong pushes to grow their technology sector.
London, he says, is challenged by its poor airport infrastructure and uncertainty over the future of the UK’s status within the EU.
“From my point of view, both cities work extremely well,” says Mr Sorrell, pictured. “I probably deep down prefer London, but I’m increasingly ambivalent and agnostic.”
While regulators in both cities have taken off the gloves in response to a series of market manipulation scandals, New York’s enforcers are seen by many as acting tougher. Even before French bank BNP Paribas was hit with a record $8.9bn penalty for evading sanctions, Wall Street banks and their foreign rivals had paid out $100bn in US settlements since the financial crisis.
But by imposing a large chunk of recent penalties on banks outside home territory, New York authorities risk a backlash against their domestic operators by foreign regulators, says Mark Yeandle, author of the most recent Global Financial Centres Index, a twice-yearly ranking which assesses a range of competitiveness measures.
London’s future is tied to whether Britain stays in the EU and the prospect of it leaving has unnerved investors. Wall Street banks have been considering plans to move some London-based activities to Ireland – partly because the eurozone’s impending banking union threatens to isolate Britain, but also in the case of a UK exit from the EU.
As former mayor Bloomberg’s McKinsey study suggested back in 2007, business can shift to jurisdictions where the legal and regulatory environment is more attractive. And in today’s world, New York and London have reason to be wary of their Asian rivals.