Bank merger worsens 'Big Apple' debt crisis


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?

Start your day with The Independent, sign up for daily news emails
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power