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'The City' Gains Footing, Gingerly
Signs of a rebound are evident in the City, the British equivalent of Wall Street. But in the wake of the financial crisis, the global banking hub is smaller, somewhat chastened and still uncertain as to how new rules and regulations may affect its future.
In the past six months, the mood has brightened significantly here, mirroring similar rebounds in other financial centers like New York and Tokyo. There has been a rapid rise in bank profits, a return of fat compensation packages and an uptick in deal chatter. And, given the current easy-money environment, banks that have gotten through the worst of the crisis now find themselves coining money, particularly in the fixed-income, foreign-exchange and commodities markets.
'The recent economic crisis has had a significant impact on London. Jobs have been lost and businesses have been forced to downsize,' said Stuart Fraser, policy chairman at the City of London Corp. But, he added, with confidence returning to the U.K. capital 'there are significant grounds for optimism.'
The City of London remains a big player on the global financial scene -- and in some areas is the biggest. London accounts for 36% of global foreign-exchange trading: the next-biggest player, New York, is responsible for 14% of turnover, according to International Financial Services London, a private-sector group that promotes the U.K. financial industry. The City was the leading center for international bond issues, with 30% of the global total. And many financial firms are seeing business improve. Barclays PLC, the large British bank, last month reported a 10% rise in profits for the first half of 2009 compared with the year-earlier period, to GBP 1.9 billion ($3.1 billion).
The improvement in financial markets globally has provided a boost to the City's hedge-fund community, which generally is seeing performance recover and investors return after having headed for the exits in droves late last year.
Assets managed by U.K.-based managers stood at $295.77 billion as of the end of July, up about 12% from the end of December, according to HedgeFund.net, owned by Channel Capital Group Inc. However, they are still 34% lower than their $448.1 billion levels at the end of 2007.
Still, the revival of the City's fortunes owes a huge amount to temporary measures by the Bank of England and other central banks, which are providing billions upon billions of pounds of virtually free money to banks.
When those measures eventually go into reverse, so may profits.
And some people fear excessive zeal by regulators could seriously damage London as a financial center. They include Boris Johnson, the mayor of London, who is arguing for a lighter touch on financial regulation, even as the leaders of his opposition Conservative Party are seeking a more vigorous clampdown.
