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Searching for stability outside New York

Stephen Beard Sep 30, 2008

Searching for stability outside New York

Stephen Beard Sep 30, 2008


Kai Ryssdal: Traders on Wall Street weren’t the only ones keeping an eye on Washington yesterday. Overseas investors were watching our political process, too. They didn’t much like what they saw. Asian and European markets were clobbered right alongside their American counterparts. For all its problems, Wall Street Is still one of the centers of global capitalism. But days like yesterday and crises like the ones we’re dealing with have foreign traders looking for other places to put their money.

From the European Desk in London, Marketplace’s Stephen Beard reports.

Stephen Beard: Three thousand miles apart, but financially, London and New York are twins. The world’s two biggest money centres are in this together. Both are reeling. Both dealt heavily in the complex securities at the heart of the crisis. Stuart Frazer is a veteran stockbroker and a key figure in the City of London Council. He admits that London and New York have both been badly dented.

Stuart Frazer: Certainly yes, they have been damaged. They’re perceived by others to have taken on far too much risk and been too lax about controls. Yes, one can only say that the damage to both of us has been done.

The Z/YEN think tank has been measuring the fallout. Michael Mainelli and his team have just produced their latest league table of financial centres. It ranks cities according to their attractiveness to brokers and bankers. Mainelli says London and New York are still on top but a couple of Far Eastern centers are catching up fast.

Michael Mainelli: Singapore and Hong Kong have risen to the point that arguably within two years they could be scoring as highly as both London and New York.

And, he says, there’s little doubt that the turmoil in Western credit markets has given Singapore and Hong Kong a justifiable boost.

Mainelli: Western banking industry, if I can call it that, has grossly tarnished its image, and so if I were in East Asia, I would rightly question whether these people had much to teach me, and maybe I’d be better to start afresh creating new models in East Asia and new ways of doing investment banking.

[Shouting sounds from financial market floor] London and New York still command the lion’s share of international financial business. The British capital has 40 percent of the world’s foreign currency market. Wall Street accounts for roughly half of all stocks traded. Some analysts believe that these two giant centers will not necessarily lose that lead.

Alistair Milne: They could throw it away, but I think if they play their cards right, they can still hold on to their global leadership.

Alistair Milne of the Cass Business School, says “playing their cards right” means not beating up on the finance industry.

Milne: When it comes to introducing additional regulations, restraints on pay, they’ve got to be very careful that they’re not actually damaging business two years, five years down the line.

The Americans did precisely that after Enron, and it was the Brits that benefited, The U.S. imposed the Sarbanes-Oxley corporate governance rules. That frightened scores of foreign companies away from Wall Street and they listed in London instead. Broker Stuart Frazer says the UK depends on its financial center for more than 10 per cent of its GDP. The Brits wouldn’t dare upset their international customers.

Stuart Frazer: So, there is greater risk, I believe, of much tougher regulation, and regulation that could drive business away in New York or in the U.S. than in the UK.

Announcer at British ceremony: Oyez, Oyez, Oyez.

While markets were tanking in London yesterday, city dignitaries gathered to elect a new Lord Mayor in quaint, ceremonial style with three cornered hats, swords and trumpets. London and New York may be twins, but they are certainly not identical. And the crisis could underline the differences. A more lightly regulated London could even pick up more of the business that leaves New York.

In London, this is Stephen Beard for Marketplace.

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