Wall Street will lose ground, is not doomed
As promised some time ago (here), some comments subsequent to the Bloomberg/Schumer report (press release; presentation (video)); but not without first having referred to The D&O Diary, The 10b-5 Daily and PointofLaw.com for their (extensive) analyses of the report. Here then is a collection of a few articles and op-eds on the report and the issues it raised from over here.
Mind you, next week another report is to be released on US competitiveness and regulation, this time by the US Chamber of Commerce’s Capital Markets Commission, or, in full, the Commission on the Regulation of US Capital Markets in the 21st Century. (Whatever the full name of the report, coining it here first, let’s agree to call it the Daley/Culvahouse report.) It will be presented at the First Annual Capital Markets Summit: Securing America’s Competitiveness, 14 March 2007, Washington DC (event details; webcast). (Interesting advance note on that upcoming report: the CIO of the Pennsylvania State Employees’ Retirement System is a Commission Member; SERS has been lead plaintiff in a number of securities actions, including against CIGNA Corp. and Royal Dutch/Shell Transport, as they then were.)
Earlier this week Charlie McCreevy, MEP and Commissioner for the Internal Market and Services, stressed the importance of “[t]ransatlantic regulatory cooperation in capital markets”, in an op-ed in the Wall Street Journal (subscription required):
For one thing, anything that hurts U.S. capital markets also hurts European companies and our economy. Economic integration runs deep, particularly in financial markets. Companies active on both sides of the Atlantic are also affected by the rules on both sides of the Atlantic. Competitiveness is a two-way street. We in Europe have improved the competitiveness of our financial markets by integrating, changing our financial regulatory structures, adopting best practice and transparent policy making, and avoiding intervention except when really necessary.
Irwin M. Stelzer, Senior Fellow and Director of Economic Policy Studies at the Hudson Institute, dutifully explores the regulatory angle in his opinion piece in the Sunday Times, but therein also incorporates more about the cities beyond the capital markets, such as property prices and this conclusion: “It’s one thing for a New York investment banker to lose a big deal to a London rival, quite another to know that the victor is celebrating in a bar superior to one in which the loser is drowning his sorrow.”
The economists at Goldman Sachs Group Inc. have weighed in on this report and the earlier Paulson Committee report as well, in a research note entitled “Is Wall Street Doomed?” (available to clients via the GS Institutional Portal, with thanks to Golman Sachs International - Media Relations for their kind submission to WV&Z): “[W]e do not think this [regulatory climate and policy reform] is the main problem - nor indeed that Wall Street is “losing out” in a regrettable way. Instead we see the growth of capital markets outside the US as a natural consequence of economic growth and market maturation elsewhere.”
It puts the reports’ emphasis on the legislative factor in perspective:
Legal and regulatory factors probably do matter, and policy reform might strengthen New York’s competitiveness. Nonetheless, we do not see them as the critical drivers behind the shift in financial market intermediation, even in the aggregate. Quite simply, economic and geographic factors matter more. […] [For example, in deciding not to list in the US,] the key factors were liquidity and execution [and not legislative and regulatory burdens].
The note then goes on to compare New York with London in particular (”The question of ‘is New York losing out?’ is typically phrased as ‘is New York losing out to London?’”) and explore trends in investment management and the world economy. In conclusion, it answers the question in the title:
So, is Wall Street doomed? Certainly not. […] At the very least, many US-based firms are likely to profit from this trend - including financial intermediaries, lawyers and accountants.
Finally, in chronological order, a selection from the Financial Times:
- Larsen: City is fast catching up with Wall Street (subscription required)
- Wighton: Threat to New York as centre of finance (subscription required), which generated this letter in response
- Beales: Cut red tape on US regulation, but keep the culture
- Willman: The City v Wall Street: the smart money is on (and in) London
What’s more: with a hat tip to London financial daily CityA.M. for spotting this, why the New York Post accompanied its article on the report with a picture of the Houses of Parliament, the UK’s governmental buildings, is anyone’s guess. (Subscribe to WV&Z here.)