A decade ago, it looked as if London would replace New York as the world’s financial capital. Mayor Michael Bloomberg and Sen. Charles Schumer even endorsed a 2007 report that said New York needed to emulate how London did business or risk losing further ground.
But the financial crisis a year later damaged London’s bid for global financial supremacy. And Friday’s Brexit outcome ended it.
Even before the Brexit vote, London’s bankers and brokers had been seeing business evaporate. The city’s share of the world’s initial public offerings had slipped to 8% from 2007’s 13% through the beginning of this week, according to Thomson Reuters. The value of all companies listed on London's stock exchange has slipped to 6% of the world's market value from 7% in 2007, according to the World Federation of Exchanges. Meanwhile, the value of New York-listed companies accounts for about 40% of total capitalization, up from 36% in 2007.
Fears that more financial activity will migrate to Frankfurt, Hong Kong or New York drove down shares in U.K.-based banks Barclays, Royal Bank of Scotland and Lloyds by more than 20% Friday. New York-based banks such as Goldman Sachs, Morgan Stanley, JPMorgan Chase and Citigroup fell by less than half as much.
The Brexit vote "represents the high-water mark of the European project," said Richard Haass, president of the Council on Foreign Relations, on a conference call Friday in which he also said he feared such aftershocks as Scotland separating from the United Kingdom.
The U.K. has consistently been New York’s largest source of tourists for many years, accounting for 1.2 million or about 10% of all international visitors. With the pound plunging to its lowest level in more than 30 years, many people in Britain will probably cancel or postpone trips and put off big-ticket purchases of all kinds. Tiffany & Co., which does 40% of its European business in Britain, saw its shares fall by 4% Friday.
Bankers were as stunned as everyone else by the outcome of the referendum. On Friday, Morgan Stanley denied a BBC report that it would start relocating 2,000 staffers to Frankfurt and Dublin, observing that there are two years until Britain formally exits the European Union.
A decade ago, business in the Square Mile, Canary Wharf and Mayfair districts was so strong that London seemed poised to capture the title of world financial capital from Wall Street. The city was a center for innovative financial products, such as credit derivatives. (AIG collapsed in 2008 because of doings at its London derivatives division.) In any case, a report prepared in 2007 by McKinsey at the behest of Mayor Bloomberg and Senator Schumer praised the British city for its easygoing approach to regulation and—hard to believe now—immigration.
“The European Union’s free movement of people, for instance, is attracting more and more talented people to their financial centers, particularly London,” the report read.
Goodbye to all that.