IT Wall Street Newsletter - February 11, 2009                                                                   Volume 4, Number 2

  Global Financial Technology News

NYC and London vie for Bottom Spot in Global Finance

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Courtesy of

To Sunil Hirani, the first hint of London's troubles comes in the form of empty seats on his twice-a-month flights from New York. Upon arrival, he notes other tell-tale signs: the empty streets, the omnipresent 70%-off sales, the cabbies complaining about a 50% decline in ridership.

“It feels like a ghost town,” says Mr. Hirani, chief executive of derivatives trader Creditex. “It just feels like London has been hit harder than New York.”

Clearly, the financial crisis has pummeled both cities. Major banks have collapsed, and others are expected to require more infusions of taxpayer cash if they are to survive. London and New York share an unemployment rate—7.4%—that is only expected to climb as financial services jobs disappear by the tens of thousands and the loss reverberates in the broader economy.

“The consensus is that these cities are hurting more than anyone else,” says Greg Clark, a London-based adviser on urban development.

Trading places

On the way up, the two vied to be crowned the global financial capital. Now that the cities are flailing, economists and business leaders are trying to figure out which has been hurt more.

London appears to have lost more. By many measures—the state of its financial markets, home prices, jobs and economic diversity—the British capital has fallen further.

“London has taken a bigger and more immediate hit,” says Kathryn Wylde, chief executive of the Partnership for New York City.

The situation has changed dramatically from two years ago, when Mayor Michael Bloomberg warned that Wall Street could be toppled from its perch.

Last year, New York extended its lead in equity trading. Increased volatility drove trading value on the New York Stock Exchange up 15.2% and that on Nasdaq up 29.6% compared with 2007, according to the World Federation of Exchanges. The value of shares changing hands on the London Stock Exchange plummeted 37.3%.

Most distressing for Londoners, the pound has taken a beating, falling last month to $1.36, its lowest level against the dollar since 1985, and drawing virtually even with the euro. In recent years, the pound has frequently risen above $2.

“People took it for granted that they could pop across to Paris for the weekend and bring back some wine,” says New York transplant Malinda Campbell, a creative director at a London-based museum consultancy. “But now there's lots of talk of holidays at home.”

Meanwhile, the strengthening dollar indicates renewed global confidence in the United States, even as it is gripped by a deepening recession and is blamed by many for the global downturn.

Precise comparisons are difficult on the labor front, but metropolitan London lost 32,000 jobs in the three months through November compared with the year-earlier period; New York City lost 22,500.

Both cities depend heavily on the financial sector, which accounts for 500,000 jobs in London and 455,000 here. But New York's economy has been aided by its greater diversity.

Strength beyond finance

“London was so tied to financial services, but New York has media, technology and health care,” Mr. Hirani says. City officials have worked hard in recent years to bolster other industries. Tax breaks helped spur film and television activity and are also attracting biotech firms, for example.

Another key component, the housing markets, exploded in both cities in recent years. Though London's bubble has burst, New York's has just deflated.

Average home prices nose-dived in central London in 2008 but were still rising for most of the year in Manhattan. London prices fell 16.9% and are expected to bottom out 30% below their peak, according to British property consulting firm Knight Frank.

In Manhattan, average prices rose 17.8% last year—despite fourth-quarter softness, according to appraisal firm Miller Samuel.

News from London has not been all bad, however. The city remains a center of international finance, with the largest cross-border capital flows of any country in the world. Of the 20 top initial public offerings in London in the past three years, 14 were by non-U.K. companies, while only four of New York's top 20 IPOs were by international firms.

In the effort to recover, New York's business and political leaders are working to diversify its economy even more. A report released last week by the Center for an Urban Future said that a more varied industry mix is vital. And at Crain's The Future of New York City conference last week, Mr. Bloomberg spoke of initiatives to bolster film, fashion and biotech.

Rivalry set aside, for now

As for financial services, regulators will play a key role in any future debate over which city is No. 1, with governments in both countries promising reform.

“How we change or don't change the regulatory structure for financial markets and how we increase or don't increase regulation is truly the question for 2009,” says Rae Rosen, chief economist at the Federal Reserve Bank of New York.

For now, New York and London have largely put their rivalry aside. The two cities realize the fates of their critical financial-services sectors are largely intertwined.

“All the London ahead of New York and New York ahead of London was easy play when the world was a very friendly place,” says Bridget Rosewell, chairman of London-based economics advisory firm Volterra Consulting and a leading British economist. “New York and London have always behaved a bit like siblings. When there's nobody else about, they'll squabble, but if you attack the family, we'll defend each other.”

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