Sinclair Stewart, banks reporter for the Report on Business, answered your questions today on his series on London's burgeoning financial services sector . The questions and answers appear at the bottom of this page. Britain's capital is in the midst of a remarkable financial services boom.
As Mr. Stewart wrote in the series' opening feature story on Monday, London is enjoying the best time since the dot-com boom, adding to a growing reputation as the world's most international financial centre.
Headhunters are scrambling to fill job vacancies, domestic stock markets are filling record trading orders, bonuses have risen almost 20 per cent on average, and bankers are racking up champagne tabs of nearly $100,000 at exclusive nightclubs - signs of a city as flush with cash as with renewed optimism.
But could the bubble burst?
Mr. Stewart, who recently travelled to the City to examine London's rapid transformation, joins us today to answer your questions.
Mr. Stewart came to The Globe and Mail in 2002 from The National Post where he covered a range of subjects including media and securities regulation. He is the co-author, along with fellow Globe reporter Jacquie McNish of Wrong Way: The Fall of Conrad Black, which won Canada's National Business Book of the Year award in 2005.
Editor's Note: globeandmail.com editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.
Sasha Nagy, Business features editor, globeandmail.com: Thanks for joining us today to discuss your series on London's burgeoning financial sector. What was your feeling about the long-term viability of the boom? Do you believe that we are witnessing something more, perhaps a global shift away from Wall Street?
Sinclair Stewart: Thanks Sasha. As they say, nothing this good can last forever. Resources, which are a key driver of London's growth, have got to cool off at some point. A lot of people think it's only a matter of time before something goes wrong on the junior AIM stock exchange, given the flood of companies coming over to take advantage of looser regulation. And you just know that when people start spraying 80 grand worth of champagne at VIP clubs, the City is tempting fate. On the other hand, this shouldn't take away from what London has achieved. It is attracting a lot more foreign capital, and it has emerged as the de facto centre for European, if not international, finance -- just witness the list of suitors cueing to buy the London Stock Exchange. Some of this revival can be laid at the feet of the energy and commodities boom, but that's too simple. There are myriad other factors, including the role of government: many believe Tony Blair's Labour party has played a key role in enabling the City to thrive. Markets move in cycles, and London will feel the pinch, just like New York and Toronto will, when things inevitably sour. But there is a belief here that some of the groundwork laid by the UK -- the vibrant hedge fund and structured product industry, the multiethnic work force, the technology and taxation regimes -- will have a permanent and positive effect.
Nick White, from London writes: I don't mean to spoil the party but has anybody thought about the downside to all this fantastic money sloshing around the city? London is one of the most expensive cities in the world to live in. For those who don't make a hundred thousand pounds a year and don't live in one of the new high rise luxury towers springing up along the Thames-life is still very difficult. The remarkable transformation of London is really just for the rich and super rich. None of that wealth is benefitting the poor. I don't believe what these people say about London. The divide between rich and poor in this country is getting much wider. Although the focus may be on London there are lots of areas in the rest of the country where economic growth as all but died leaving massive unemployment. I don't feel there is any excuse for this London-centric point of view and I don't believe The Olympics and the docklands redevelopment is in the interest of the less well off areas of the rest of the country. All this is yet another damning indictment of the tragic 'New' Labour tyranny. Thank you.
Stewart: Hey Nick.
I've got to admit I was horrified to learn how much friends were paying to rent flats in London. As for the handful who can actually afford to buy a home? Well, I don't need to tell you. Unprecedented City bonuses can have a distorting effect on the economy, and they're playing havoc right now with the top end of the housing market, which in effect pushes more people to the fringes. One can argue that the rich salaries and bonuses paid to bankers have actually masked deeper problems in London, if not the UK: government tax income, for example, was up modestly this year, but only because of how incredibly well the top earners have done. If it wasn't boom-times in the City, tax revenue would likely have decreased, suggesting that the rest of the population either is having trouble finding work (about 1-million people are now unemployed here), or having trouble finding good-paying work. Others would argue that without the benefit of a vibrant financial sector, the UK's coffers would be looking a lot worse. They'd also point out that it's one of the few professional sectors where employment is really growing: it was at a peak of 327,600 last year, and is expected to rise another 14,000 in 2007. Not all of these are senior brokerage jobs, of course, but many are in the tech support, accounting, and administrative industries.
A. Stewart from Toronto writes:
I read a great article in the Guardian (UK) yesterday that looked at one aspect of this very topic - London as a haven for the ultra-rich - an excellent place to store and move money, thousands been employed by this very task. Unlike New York, the London financial community has a broad perspective - they will help you with your cash regardless if you are a Arab or Russian. I daresay if I ever find myself on the business-end of a billion dollars, London would be my first stop!
Stewart:Hi A.
That's a shrewd observation. You're bang-on about London's appeal as both playground and haven for the uber-wealthy, the result of a very, very favourable tax regime. Essentially, foreigners who live in London (but who are not technically "domiciled" there … I know, it's a very murky distinction) are only taxed on the money they bring into the UK. If they have sizable sources of income abroad, they can keep it in other countries, or send it offshore, without having to pay taxes. It's not a bad set-up if you're rich, and it's the reason so many international moguls have braved London's real estate market to buy a home there. That in itself adds to London's cosmopolitan financial scene.
Yet there is also the issue of capital flow. London's markets are viewed as much more accomodating to foreign interests than, say, New York. I spoke with several people in the City who suggested the recent controversy over the Dubai Ports deal in the U.S., which was imbued with a xenophobic edge, will not help U.S. relations with Middle Eastern financiers, and that London could benefit as a result. One more point worth mentioning. A lot of junior resources companies, many Canadian, are rushing to London to list on its junior AIM exchange. They claim that London investors are much more comfortable than their Canadian counterparts when it comes to investing in companies that have dealings in Eastern Europe or Africa.
Sasha Nagy asks:
You mention more than a few times in the series how the Alternative Investment Market reminds one of the old Vancouver Stock Exchange. With that in mind, do you foresee more and more Canadian entrepreneurs turning to AIM, rather than say the Toronto Venture Exchange to launch their enterprises?
Stewart:
Thanks Sasha. Everyone is asking this question right now, and there is no clear consensus. To this point, we haven't really seen evidence that AIM is depriving Canadian exchanges of new listings. About 90 per cent of domestic companies who list in London are already publicly traded on their home turf. Going overseas doesn't give them much more trading activity, but it does open the door to a substantial pool of new investors with a thirst -- and an understanding -- of growth companies. The Toronto Stock Exchange is beginning to pay more attention to its smaller rival, but is still fairly dismissive. What will start worrying them is if Canadian companies begin to bypass our market altogether in favour of AIM's more, shall we say, accomodating regulatory policy. Sandvine Inc. of Waterloo did just that last month, but many believe it will return home for an additional listing once it gets larger.
Elizabeth Bennett, of Toronto asks:
The amount of money flying around London is the sexy angle, but what do you think of the underlying reasons for it, specifically the regulatory environment? Any exchange is one scandal away from problems, but AIM's success says a lot about the FSA's principles-based approach to regulation, in contrast to other, more prescriptive environments and what they really mean to issuers trying to grow businesses.
Stewart: Hi Elizabeth.
You've hit on the conundrum that all Canadians securities watchdogs are wrestling with at the moment. There's a growing feeling in Canada that the U.S. Sarbanes-Oxley Act has shifted the pendulum too far in favour of the prescriptive approach, and that some sort of counter-balance is needed to ease the burden on smaller public companies. BC's regulator has advocated a principals approach for several years, while Ontario has tended to align itself more closely with what is happening in Washington. That said, there seems to be a newfound spirit of cooperation between Canada's (often at odds) securities bodies, and don't be surprised to see a swing toward some more principals-based regulation in the near future. This is a balancing act, remember, and no one wants to jeopardize the sort of mutual recognition deals we have with our larger southern neighbour. As for AIM, well, the jury is out. It's working right now, but it's thin rule-book hasn't been tested for that long. The TSX insists it will never ease its restrictions to that degree, because it fears reputational damage to the exchange. Either way you cut it, though, I think AIM's sudden popularity has exposed a real problem that has to be addressed: how can smaller companies, which really move the economy, continue to go public if they can't afford to abide by a one-size-fits-all regulatory scheme?
Sasha Nagy:
That's about all the time we have today. Thanks Sinclair for answering questions about your London series.
Stewart: Thanks for the great questions and comments, everyone. I think Elizabeth was right: the torrents of cash coursing through the City right now tend to grab the headlines, but it's the underpinnings of the boom that have the greatest consequences, particularly for the Canadian market. The migration of Canadian brokerage and law firms to London is increasing the international capabilities of our financial players, while the flow of companies hunting for investors there is posing a potentially serious challenge to our exchanges. The AIM phenomenon, perhaps as much as anything recently, is also forcing regulators in North America to rethink the way in which they police their markets. Above all, though, I think London has come to embody the increasingly globalized nature of the world's markets: a multicultural financial sector, awash in capital of all stripes, that can boast strong ties not merely to the US, but also to emerging powers like China and India.