London's future as a financial centre
Where do you see London in 10 to 20 years?
Will it manage to hold onto its status as a top-tier global financial superpower, or is it on a slow, irreversible path to becoming a secondary regional hub?
Brexit didn't do it any favors. The UK's economy has been in the toilet (or 'loo' if you prefer) for a decade, and being cut off from the eurozone isn't helping the City of London at all. About the only thing going for London is the fragmentation of the European financial system. There is no clear rival set to usurp it. Frankfurt is likely closest, but I doubt most of the US or Asia could even find it on a map.
Yeah, the main thing is that a bunch of smaller hubs do good specific things. Frankfurt is great for commercial lending, Amsterdam in trading, Paris in capital markets, Zurich in private wealth, Dublin seems rather strong for the Fintech and insurance markets. The problem is that while each of them might beat London in their specific area, they fail to establish a strong alternative for companies that do all of these, meaning the largest banks and funds will always prefer London with smaller offices in mainland Europe.
Well that kinda depends on whether you think the UK economy and public markets will be stronger or weaker going forwards.
In terms of trading(my own realm) it's already slipped behind the Dutch markets in terms of where people want to go. Dutch markets are more accessible to a wider range of products and such. That said, if you want deals done, if you need financing, if you need literally anything not trading, you go to London.
However, I've been rather pessimistic about Europe as a whole going forwards. Reason being, leadership feels like a directionless chicken. Some want to go all in on reindustrialization, others want to push for tech, some want to push more into services. The US is in the same stretch, but the difference is that US private firms are still leaders. The EU can't compete with China in terms of central planning, and can't compete with the US in terms of private industry strength. It's not an envious position to be in.
As a result, less and less will go towards London just as a result of more and more of the future coming from the East and from the US.
Yeah up until the last 2 months I would have said the Gulf would be more likely to supplant the UK. Dubai is the closest thing to a bias-less fiancial center, where you have Russians, Israeli's, Indians, Brits, and an increasing number of American firms all interacting and doing business within an extremely tax friendly jurisdiction. Will see how it evolves going forward.
I doubt that heavily. Only reason being, you want real companies and firms around your financial sectors. The UK is in an opportune space because it's closer to all the major countries of Central and Western Europe, and so time zones overlap, you can take a train there, it's all easy to do so. Same think with HK, Singapore, and NY. You have to have a base of real corporations building and requiring finance.
For what it's worth, I don't think anyone actually wants a biasless financial market. Chinese firms like being on Chinese markets. American firms like being on American markets. European firms like being on European markets. I just don't see the market where firms would like a biasless place, and biasless is doing some heavy lifting in a country that basically has slavery and horrible human rights abuses
It's going to be the default option in Europe despite Brexit or any other issues because the whole city (and country) speak English. It's going to remain a top global destination because of its connection with Europe, but it's losing its edge as Europe is losing its edge.
Even in spite of Brexit, which did harm to foreign investment and capital flows, London is still and always will be the premier finance hub in Europe. The Americans still view London as their main coverage hub for Europe and (whilst you still need boots on the ground in Paris, Frankfurt and maybe Madrid), you can do a lot of European coverage from London satellites. London still has the pull of attracting top European talent and that's why you see a load of 25yo interns from HEC/Bocconi etc.
Politically, the UK is over-reliant on the City and its professional services sector, 12-13% and the regional imbalance has not really been addressed beyond some light, right-minded schemes that weren't executed well (Northern Powerhouse, Levelling Up etc). If Starmer is ousted, which is likely by the end of the year, you will have serious bond market risks in Burnham or Rayner succeeding him, moving left economically with wealth taxes, bank levies (which some banks have now accepted as near certain if a leadership change occurs) and further tax hikes and unproductive public spending that will trigger further strains on UK gilt yields.
Lastly, Brexit is a convenient inflexion point (I'd argue some aspects of the City were more distraught at Russian oligarch sanctions that reduced their renting of the London laundromat system) though a lot of the City's decline is domestic policy pre-dating Brexit. Mass over-regulation in response to the GFC was always a given but I'd say 2012-16 is where the US Banks really recovered well post-crisis and continued to do well and the UK clearers still trade at a 20-30% discount to European peers (who have their own issues with consolidation and lack of a fiscal union)
The finance sector (where that 12% figure comes from) is mostly retail banking, insurance, pensions etc. not 'the city'. Things like investment banking just get a lot of media attention. Most financial jobs are not in London.
12-13% of GDP from professional services - https://www.thecityuk.com/news/financial-and-related-professional-services-remain-key-contributor-to-uk-economy/
agree not everything is London-centric
London will remain the default for Europe only
That said, Europe will continue to bleed mkt share to US / Singapore / Dubai / HK
Basically London will be the tallest dwarf in Europe but still a midget compared to the global on go-forward basis
HK / Singapore are interesting ones
Never said American capital will go to HK -- it won't. British capital though is much more susceptible (though the main share takers from British capital are likely Dubai / Singapore)
I don't think London is going to fade away anytime soon. It may not dominate like it once did, and competition from places like New York and Singapore is growing, but London still has a strong financial industry, global connections, and plenty of talent.
while the sun has long set on Britain Londons demise a financial centre is way overblown
it is still the place worldwide for many types of insurances (esp multinational stuff).
english law is very well regarded so many international deals are filed under english legal jurisdiction
it is also a huge FX and commodities trading hub
if we think of professional services as a whole (finance, law, accounting, consulting etc.) only it’s NYC then London and 3rd place is way below and that’s not changing for another 5-10 years
Long term the future is clearly in the east however
Maritime law is an interesting counterargument to my statement. Lloyds is the gold standard and even flexing Munich and Chubb Re doesn't put you in the same game. I don't know enough to speak well there.
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