With the City boarded up in preparation for an influx of people seemingly intent on swinging effigies of bankers from lampposts, now may seem a strange moment to suggest that London’s financial services prowess is increasing. However, it surely is.
In relative terms the City is still doing fine. The most recent Global Financial Centres Index (GFCI) showed it maintaining its position as the leading global financial centre by a strong margin.
The GFCI is sponsored by the City of London, leading some people to question its impartiality. However, there are good reasons why the City is doing relatively ok, and should continue to do so.
First is the fact that in a down market it makes sense to pull back from more minor financial centres and to focus resources in key locations. RBS, for example, is shifting to more of a ‘hub and spoke model.’ In future, trading (or what remains of it) at RBS is to be handled out of key financial centres (London), risk is to be managed from regional hubs, and other local offices will in future be home to no more than a few distribution and relationship bankers.
Secondly, as regional financial centres trim what little staff they have, London’s critical mass of financial services expertise should bring increased competitive advantage. Italian banks like UniCredit, Mediobanca and Banca IMI are already using the City as a base for their distribution or execution activities.
Thirdly, London’s house prices are in swift decline. They fell 16% last year and are likely to drop further still. Combined with the falling pound, this should make the City a cheaper place to live for banking expats and may even lure them from elsewhere.
And fourthly, whatever else happens, London will always have the advantage of straddling time zones. The only other major competitor in this sense is Dubai, which is suffering too.
There are other optimists about the City’s future. “We’re all beating ourselves up and we need to make a lot of changes, but the City’s reputation overseas is still pretty good,” says Nick Studer at financial services consultancy Oliver Wyman. “The big financial centres are coming out ahead – they are more robust and diversified.”
Even the threat of European regulation need not be the cudgel it’s sometimes seen as. “In the past, London has actually benefited from European directives,” says Mark Yeandle at of Z/Yen, the consultancy which produces the Global Financial Centres Index. “For example, we’re now finessing how to implement the third Anti-Money Laundering Directive, while the Mediterranean countries are still trying to implement the 2nd Directive of 1991.”
This week may be particularly dismal, but the long term future is (comparatively) bright.