London vs rest of the world's financial centres

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The Independent Online

To listen to the prophets of doom you'd think London's financial centre has had it as a force to be reckoned with. Beset with scandals and faced with a tough, new regulatory regime as a result, not to mention being roundly despised by a banker-bashing general public, the outlook isn't exactly cheery.

Then there is the country's high 45 per cent top rate of tax about which many finance professionals, who can easily afford it, still complain bitterly. This has fostered a narrative of decline with New York, Singapore, Hong Kong and others poised to clean up on London's losses. There are figures to back up the case, too. In a gloomy recent article, The Economist cited research from the CEBR, an economics consultancy, showing London's financial industry will have lost about 100,000 jobs by the end of this year from a peak of 354,000 in 2007. By comparison, New York's financial comptroller thought Wall Street employed only 20,000 fewer people than before the crisis.

And it's true that a number of big investment banks with sizeable operations in London are in full-scale retreat, notably Royal Bank of Scotland and Nomura, while others such as Deutsche Bank and Barclays are cutting back.

But that's not the whole story: the most up-to-date edition of the Global Financial Centres Index, a barometer that tracks movements in the competitiveness of 77 global financial centres, ranks London in exactly the same position it held before the financial crisis, the Libor scandal and the perception of Britain as a nest of banker bashers: first.

In fact, in the most recent quarter, its lead over New York, the longtime No 2, increased slightly.

The index is not just a cheap survey. It is calculated by questioning 1,890 financial-services professionals who provided 26,180 assessments of financial centres.

Interestingly, the past trend of huge leaps in the power of Asian tiger centres such as Hong Kong, Singapore, Shanghai, Taipei, Shenzhen, even Tokyo, stalled. All saw their scores dropping, although the report notes that respondents believe this may be temporary and the Asian financial hubs will roar back in the medium-to-long term, which doesn't hurt London at all, sitting as it does in a convenient time zone that overlaps with both New York and the emerging Asian powers.

London is also where New York banks still hold most of their non-US assets. Some 85 per cent of them, according to Paul Volcker, the former US Federal Reserve chief who drafted a key part of America's reforms to financial regulation.

The issue of regulation, and whether the new, get-tough regime in place since the crisis (with more to come promised by the Financial Conduct Authority) was recently addressed by the Parliamentary Commission on Banking Standards. Mr Volcker said: "The argument that you hear all the time is, 'Oh, we are all going to move to New York'. If you are in New York, you hear, 'Oh no, we are all going to move to London'. Those are the only two centres now that really have the capability, the size and the knowledge really to do this in a big way."

London's other advantages are also often undersold. Not just the time zone, but the "network" or "cluster" effect of having large groups of senior people all working in the same field available.

The legal system, too, may be much derided. But unlike parts of Asia, the rule of law functions here and in a far less onerous manner than it does in London's other big rival, the US.

So while rivals would dearly like to usurp London's position they aren't going to find it easy. It seems as though reports of London's demise as a financial centre have been greatly exaggerated. And figures from Reuters contradict the CEBR's bleak view, showing the total UK employment of people in financial activities was 1.28 million at the start of 2008. It was only down slightly to 1.23 million at the end of this year.

HSBC's chairman Douglas Flint said: "London has proven time and again its ability to adapt to changing global circumstances. "