Bank merger worsens 'Big Apple' debt crisis

  • @dusborne
Last Monday the graveyard face of New York Mayor, Rudolph Giuliani, wore a broad smile. Wall Street had just been told of the impending merger of two of the city's largest and most venerable banking institutions, Chemical and Chase Manhattan, and Mr Giuliani hailed the news as wonderful. The deal, he said, "enhances New York's position as capital of the world".

Perhaps the mayor was so cheerful because he had been let into the secret by the two banks several days ahead of the rest of us. Whatever, it seemed thoroughly uncalled for. The joining of Chase and Chemical will entail the loss of an estimated 4,000 jobs in New York alone - of 12,000 worldwide - and a corresponding reduction in tax revenue. This is not what this city - nor indeed the Mayor - needs right now.

Twenty years after the Apple very nearly went bankrupt, it is again faced with a crippling financial crisis. Public debt now stands at $23bn and the burden was made heavier when the Standard & Poor's credit agency down- graded that debt from a single A minus rating to a triple B plus. By 1999, it is estimated that 19 cents of every tax dollar will go to servicing the city's borrowings, up from the current 13.5 cents. In such a position as this, losing tax dollars would not seem a smiling matter.

Keeping employment in the city is a perennial battle for its fathers. The increasingly extravagant stream of tax concessions offered to companies to resist the temptation to relocate is bearing dwindling results. Two of the financial district's oldest trading floors - the Coffee, Sugar and Cocoa Exchange and the New York Cotton Exchange - recently announced plans to move, syphoning 5,000 jobs from Manhattan. Last Autumn, Swiss Bank fled for Stamford, Connecticut, taking 1,300 jobs.

It is poignant to remember that Chase has been one of the very largest beneficiaries of the city's policy of tax-break bribes. In 1988, the bank won $235m in state and city tax concessions by deciding to move 5,000 workers to Brooklyn instead of New Jersey as originally planned. Now, most of those jobs are to be wiped out.

S&P dealt a harsh blow to Mr Giuliani. The downgrade is likely to make future city borrowings even more expensive and said little of the efforts the Mayor has made to get the city budget under control since he took office 1993. In the face of considerable political risk, Mr Giuliani has trimmed annual spending by $3bn on a budget of $31.5bn Announcing its decision, however, S&P highlighted the one-off nature of some of those savings and cited "persistent softness in the city's economy, highlighted by weak job growth and a growing dependence on the volatile financial services sector".

Mr Giuliani was hardly helped by last year's troubles on the bond market. Most sorrowful, however, has been the speed at which the banks themselves have been shedding jobs in New York, thanks to advancing technology and also to a long exodus of management jobs to the Midwest and the South. While in 1988, 117,900 people worked for banks in New York, that figure has now slumped to 74,700. Among key industries, only hotels this year can honestly report anything approaching a boom. According to latest statistics, there were roughly 3.3 million people employed in the city in July this year, no change on a year before. But over five years, the city has lost nearly 250,000 jobs.

Divining what repels companies from the city is not hard. True, Mr Giuliani's administration has been able to boast some remarkably improved crime statistics of late. But physically, the Apple is rotting. Never mind investing in some of the new infrastructure that companies expect of a modern metropolis, keeping what is already standing from falling apart is hard enough. New York is still a great place to sell shock absorbers.

And there is a danger, of course, that all Mr Giuliani's budget-cutting will only make the situation worse. When the schools open their doors again this week, 6-to 9-year-olds will find their classes have grown bigger again and that their hours with a teacher will be fewer. Meanwhile, the Mayor himself has put another 15,000 people out on the street by streamlining the city payroll.

As yet, New York is not quite in the kind of trouble that it was 20 years ago when it came within days of bankruptcy. But with neither the state nor federal government in any kind of mood to show it any favouritism this time around, the city faces a highly problematic future. One thing it cannot afford to do at the moment is lose jobs. So what are you applauding, Mr Mayor?