The FT is running a series examining the future of the City of London. Here we look back at how the UK capital established itself as an international financial centre and explore the geography and the business of the City.
As far back as 1980 banks with offices in the UK had cross-border exposures far greater than banks in Germany and France, according to data from the Bank for International Settlements. Big international banks use London for large syndicate loans that ultimately go to foreign clients. The City also attracts assets to support trading and liquidity management at banks that range from the UK’s Barclays to big US investment banks such as Goldman Sachs. Markets such as Hong Kong, Germany and Ireland have seen exposures grow faster in the past 20 years but from a lower base. Brexit has prompted banks to shift assets to EU trading hubs.
Jobs have not always kept pace with the growth of the City. Official registers in the UK, Hong Kong and New York vary in the jobs they track. Oliver Wyman data for the UK show that between 100,000 and 105,000 people work in wholesale banking, a key City activity, while another 80,000 to 85,000 work in related industries including asset management, data providers and fintechs. The consultancy group’s overall tally of wholesale banking and related industry jobs has gone down by about 5,000 since 2015.
London is a hub for trading currencies and interest rate derivatives. Its location allows traders to catch the end of the Asian day and the opening on Wall Street. The good fortune of geography is underpinned by high-quality tech infrastructure. As a result, London accounts for 43 per cent of the turnover in the $6.6tn-a-day foreign exchange market and half of the daily $6.5tn traded in interest rate derivatives. Brexit has not dented the UK capital’s dominance in these markets.
New York long ago eclipsed London as the dominant centre for taking companies public. This year companies listing on Nasdaq and the New York Stock Exchange raised a record $150bn, dwarfing the $6bn or so raised in London, with mega IPOs such as DoorDash and Airbnb. With today’s fast-growing companies tending to hail from Asia and the US, London is unlikely to again challenge for the lead. Adam Markson, head of UK capital markets at Accenture, said that the UK government’s vow to review listings requirements could enhance London’s position.
Portfolio managers in London oversee about £8.5tn in assets for savers in funds and mandates, according to the Investment Association. This makes the UK the primary investment management centre in Europe and the second-largest globally after the US. Assets under management have almost tripled since 2009. Stockpickers have flocked to the UK thanks to its sophisticated ecosystem of brokers, sellside analysts and lawyers, and ready access to liquid markets. London has expanded its market share at the expense of countries including France and Germany, where assets under management have fallen since the crisis, according to the European Fund and Asset Management Association.
Vacancy rates have risen since the Brexit vote. About 6 per cent of the commercial real estate stock in the City of London is empty, according to property firm Colliers International. That compares with 3.81 per cent at the end of 2016. The legacy of coronavirus will be even more empty space: Colliers estimates that vacancy rates across London will hit 10 per cent in the next six months. Rents in London have held up. But Colliers forecasts that average rents will fall around 8 per cent next year as a result of coronavirus.
The Covid-19 pandemic prompted a sharp drop in activity in London, as office workers, shoppers and tourists stayed at home. Nine months on, the recovery has been muted. Businesses in the City of London, an area dominated by office towers with relatively few residents, are particularly vulnerable. Those include around 1,150 shops, 300 restaurants and 247 bars and pubs, according to estimates from the City of London Planning Department. Weeks after City offices had begun to reopen again in September, London went into a second lockdown, emptying them out again. The shift to remote working could cost London’s financial services industry even more jobs than Brexit.
A group of 12 of the largest foreign banks together employed more than 70,000 UK staff around the time of the Brexit vote. Those jobs were seen as acutely at risk from Brexit, which will require some activities and clients to be served from within the EU. Almost five years in, Brexit-related job cuts have been minimal — so far. But jobs have gone for other reasons, such as restructurings at Credit Suisse and Deutsche Bank. And the coronavirus pandemic is prompting banks to rethink how much office space they need. Some have continued to invest in London. Goldman Sachs moved its European headquarters to 1 Plumtree Court in mid-2019, UBS decamped to 5 Broadgate in 2016, and Société Générale moved to its new Canary Wharf site late last year.
Mayfair remains the heart of the European hedge fund industry. And many prominent managers, such as Crispin Odey, Paul Marshall and Michael Farmer, were vocal proponents of Brexit. EU regulators have called for toughening rules that allow asset managers to run an EU-based fund from outside the bloc. Should that happen, then UK hedge funds and asset managers would have to base more of their staff and operations inside the EU. However, larger asset managers, who tend to prefer the City to Mayfair have actually increased their London headcount since the 2016 referendum. Among those are Amundi, Legal and General Investment Management and Pimco.
Foreign and British insurers are clustered close to the world’s leading insurance and reinsurance marketplace: Lloyd’s of London on Lime Street. There has not yet been a significant movement of staff from London’s insurance industry, but many have set up new EU subsidiaries. Most significantly, Lloyd’s of London has established a new office in Brussels. Others including AIG and Travelers have set up bases in cities including Luxembourg, Dublin and Madrid. Several law firms, including Pinsent Masons, Simmons & Simmons and DAC Beachcroft have opened offices in Dublin. Big Four accounting firms PwC, EY, Deloitte and KPMG had big operations in EU countries going into Brexit.
Reporting by Laura Noonan, Steven Bernard, Jonathan Guthrie, Liz Faunce and Alan Smith; additional reporting by Philip Stafford, Laurence Fletcher, Oliver Ralph, Siobhan Riding, Attracta Mooney, Tabby Kinder and George Hammond.
Note: maps include selected companies only