In the 1970s, James Cayne would visit London every year to compete in The Times bridge tournament at the Hyde Park hotel.
Now, 25 years later, he still looks back fondly. “It was great. You didn’t see elegance like it anywhere else in the world.”
Cayne, one of the most powerful bankers on Wall Street, still visits London — but these days he flies in on a private jet, which happens to be a Boeing 727 — and he comes to do business, not play bridge.
Business is booming in London for Bear Stearns, a top investment banking, securities trading and brokerage firm that was formed in the early 1920s. “The numbers speak for themselves,” said Cayne. “The last two years have been sensational. London is no longer the second city. Right now it is as fast as New York.”
He is not the only one with his eyes on London. On Friday, Nasdaq, New York’s technology-dominated exchange, launched a £2.4 billion bid for the London Stock Exchange (LSE), and promptly had it rejected. Already this year the LSE has fought off a bid from Australia’s Macquarie Bank.
Michel Peretie, chairman of Bear Stearns’ international division, shares Cayne’s enthusiasm. “You can deal with both America and the Far East in the same day, he said. “London is becoming more attractive for some American companies because of Sarbanes-Oxley (the tougher American disclosure requirements introduced in the wake of the Enron and Worldcom scandals).
“London is probably the most international city in the world. I am a Frenchman and I love my country, but I feel as at home here as in Paris.”
According to Jeremy Isaacs, chief executive of Lehman Brothers in Europe and Asia: “People go to Tokyo to do business in Japan, they go to New York to do business in America, but they come to London to do business with the rest of the world.”
Oliver Hemsley agrees. The chief executive of Numis, the investment bank that has raised money for a string of firms in the London market, said: “The Americans have forgotten that you do not have to list in the US. There are alternatives. London’s welcoming and flexible approach to both foreign companies and investors means that it has emerged as the place for foreign companies.”
Seven years ago, when the euro was launched, some experts warned that Britain’s non-participation would so badly handicap the City as to hand over its role as Europe’s leading financial centre to Paris or Frankfurt. In fact the opposite has happened; London has thrived, to the point where it is challenging New York.
Alan Yarrow, chairman of the London Investment Banking Association and a vice-chairman of Dresdner Kleinwort Wasserstein, said: “Five years ago you could have argued that Frankfurt and Paris wanted to challenge London, but the cluster effect of professional services here has given London a huge advantage over rival European markets.”
So London has seen off its European rivals. But could it ever overtake New York, or is that a pipedream?
THE Corporation of London recently commissioned a study, The Competitive Position of London as a Global Financial Centre. It showed, as Michael Snyder of the corporation put it, “that there are only two genuinely global financial centres — London and New York”.
The report, by consultants Z/Yen, showed that Frankfurt, Paris, Tokyo, Hong Kong and Singapore were all well below the two leaders on a range of measures, including the availability of skilled personnel, the regulatory environment, access to international markets, the tax regime, and access to customers. And, intriguingly, when it came to the battle of the giants, London ranked slightly ahead of New York.
Hard data bear this out. Daily foreign-exchange turnover in London is £432 billion, 31% of the world total. About 70% of the eurobond trade is in London. London dominates global turnover in foreign equity — companies quoted outside their country of nationality — with 43% of the total.
Richard Peterson, senior researcher at Thomson Financial, said: “Ten years ago New York looked like the only choice, but there is more competition now. New York is very much an Old Boy’s club; it can be a very closed community.”
Figures from Thomson Financial show that London has increasingly been taking business from the New York Stock Exchange (NYSE). Non-UK flotations on the LSE raised more than £9 billion last year; non-US flotations on the NYSE raised only £2 billion.
Six of the 10 biggest floats in London last year were registered abroad, including Gibraltar-based Party Gaming. Three were from Russia: Sistema, Novatek and Novolipetsk Iron and Steel. Two were from the Middle East: Telecom Egypt and Investcom from the United Arab Emirates.
Last month Comstar, the fixed-line telecommunications subsidiary of Sistema, joined the main market. Last month too, Lotte Shopping, a South Korean retailer, announced a £2 billion float, the largest ever by a Korean company.
So far this year there have been only two non-US initial public offerings on the New York exchange. There have been 32 non-UK listings in London.
Scroll back a few years to 2000, and New York was ahead. The NYSE raised £8.4 billion for foreign companies in 2000, before the dotcom-led stock-market collapse and the introduction of Sarbanes- Oxley. In the same year London raised £5.5 billion.
The flood has not escaped the notice of the NYSE, which floated as a public company last week. One insider said: “We are losing business to London and it’s a real worry. Sarbanes-Oxley was designed to protect American companies and instead it’s hurting us. We also have a big problem with the litigation culture. Companies know they are more likely to be sued here.”
Comparisons by International Financial Services London (IFSL), an industry trade body, show that there are eight areas of activity where Europe, led by London, is ahead of America, led by New York. They include cross-border bank lending, marine insurance, commercial banking assets, foreign exchange, international bonds, and foreign-equity trading.
America, led by New York, remains ahead in equity-market turnover, bond trading, exchange-traded derivatives, funds under management, investment banking and hedge funds under management.
But London’s share is growing in many of the sectors in which it is currently behind, said Duncan McKenzie, IFSL’s director of economics. “It’s right to be positive,” he said. “New York has a big advantage in domestic-equity and bond trading because of the sheer size of the American economy, but we are doing well. New York is still bigger when it comes to hedge funds, but a growing number are now here.”
There were a record number of new hedge-fund launches in Europe last year, according to Eurohedge. More than 330 new funds started up, raising combined assets of £16 billion, up from 250 in 2004 with aggregate assets of £13 billion.
Most of these occurred in London, the overwhelming capital of European hedge funds and increasingly the world. Over the next few months some of America’s best-known and most powerful hedge funds are expected to launch in London.
Dixon Boardman, the American financier, has always been something of an Anglophile. After attending university here, he maintained his ties with Britain’s aristocracy and has something close to an English accent. He is a trustee of Blenheim Palace, where he shoots with his old friend the Duke of Marlborough.
But society aside, Boardman is, and always has been, very much a New Yorker. In 1988 he set up Optima, one of New York’s first hedge fund of fund companies to help America’s super-rich get exposure to the new, high-rolling industry.
Optima now has more than £3 billion of assets under management, an enviable record of 18 years of 13% compound growth, and is regarded as one of the best hedge fund of funds businesses in the world, all run from New York.
But next month Boardman is breaking with tradition and is opening an office in London, Optima’s first foray overseas. Like most others in the business, he has recognised that it is impossible not to be in London.
THE short-term effect of London’s rise has been to breathe life into the property market, thanks to big bucks and bonuses.
Nick Candy, of Candy & Candy property, said: “The London property market is going mad. Our projected volumes for the whole year were done in January and February alone. The golden postcodes — around Belgravia, Knightsbridge, Mayfair and parts of Kensington & Chelsea — are the hot ones along with St John’s Wood and Hampstead.
“Last week we had five foreigners bidding for one apartment, which went for £15m, well above the asking price.”
The longer-term effects are being closely watched in the Treasury. In a speech to bond traders last month, Gordon Brown praised the City “as the fastest-growing part of Britain over the past 10 years”.
London, he said, was “the world’s leading centre for international financial and capital markets. Our dynamism means the City has been able to embrace new innovations and to continually introduce new products”.
Treasury sources said Brown wants to go further. The budget, in 10 days, will contain measures to reinforce London’s strengths, and make sure it benefits from growing Middle East oil wealth and the rising economic importance of China and India.
London, he will say, can be the gateway through which the emerging world deals with Europe and global financial markets. It may be optimistic — Shanghai and Mumbai have their own ambitions — but it isn’t unrealistic.
A combination of tradition and circumstances has made London’s financial-services industry one of the few parts of the economy where Britain has a big competitive advantage. The task is to build on that, with or without Brown’s help.
London can pay better
TRADERS and salesmen working in London can earn more than their counterparts in New York, according to a survey by Napier Scott, the executive search firm.
The survey, to be published this week, reveals that traders and salesmen in the debt markets can earn almost twice as much as their American peers.
For example, a London-based director working in credit structuring earns an average £90,000 a year plus a £450,000 bonus. His American counterpart earns about £88,000 plus a £240,000 bonus.
‘London is an increasingly attractive place for people to work,’ said Shaun Springer, chief executive of Napier Scott. ‘There is a vast quality of skills in London. It’s a virtuous circle. People want to go where the skills are.’
Reporting team: Louise Armitstead, Richard Fletcher, Mark Kleinman and Dominic Rushe, New York
