London as an International
Financial Center
"London, along with New York and Tokyo, is
one of the world's three largest financial centres, with a dominant
role in several international financial markets, including
crossborder bank lending, international bond issuance and trading,
foreign-exchange trading, over-the-counter derivatives, fund
management and foreign equities trading. It also has the world's
largest insurance market, the leading exchange for dealing in
non-precious metals, the largest spot gold and gold lending markets,
the largest shipbroking market, and more foreign banks and
investment houses than any other centre."
[Source: "Financial Service." Country
Background. United Kingdom. EIU
Viewswire.]
London's Share in International
Financial Markets
[Source: Charts and
Tables. Research. International
Financial Services London.]
London's Competitive Advantages
"A significant question posed by the creation
of EMU is whether London can remain at the top of Europe's financial
league. For hundreds of year's London has reigned supreme as
Europe's financial capital, dominating foreign exchange and stocks
and shares dealing, amongst other things. However, the launch of the
Euro has seen the creation of a European Central Bank (ECB) that
will set monetary policy across 11 EU countries that have chosen to
join up. The ECBis not located in London and has its headquarters in
Frankfurt, Germany's financial centre...
"However, London also has clear advantages.
For example, even though the Euro has been on the cards for a long
time, companies have continued to flock to London. None of the major
banks so far have announced plans to move to Germany. London's
expertise in business is still renowned. Frankfurt does not have the
employment base or the expertise. There is an adaptive regulatory
framework which has been successful in maintaining confidence in
financial institutions and markets without stifling innovation and
risk-taking. Also, London's financial district employs about 600,00
people, the same number of people as the hole population of
Frankfurt. Labour is readily available and also cheaper than in
Germany. Those who are pro-London point out that in the US the
Central Bank is in Washington and all the power is in New York.
Finally, London has the advantage of English as the language of
international business."
[Source: UK
Investment Management in 2005.
By Carolyn Sahakian. London: Datamonitor, c1998. pp. 31-33. In
Business Insight.]
London's
Future in Finance
"London is consolidating its position as the
world's leading financial center, confounding the critics who penned
a premature obituary after the European Central Bank opened its
doors in Frankfurt and the United Kingdom decided not to join
Europe's single currency, the euro. London's financial district,
known as "the City," has pulled further ahead of its
continental rivals since the euro was launched in January and has
built an unassailable lead in important sectors, such as foreign
exchange, eurobonds, and share trading. Says Bank of England
Governor Sir Eddie George, 'There were those who argued that the
City of London would suffer if the UK failed to join [the euro] from
the outset. That clearly has not so far happened-quite the reverse.'"
[Source: "London's Future in Finance."
By Bruce Barnard. Europe October 2000, pp.28-29. In ABI/INFORM.]
Franfurt's
Future as a Financial Center
"FRANKFURT: Two McKinsey consultants recently and
unwittingly stoked the debate over Frankfurt's future as a
financial centre. Their private memo to the heads of Dresdner
Bank, Germany's third-biggest bank, and Deutsche Borse, operator
of the city's stock exchange, declaring that Finanzplatz Frankfurt
was "falling apart", was leaked to the Frankfurter Allgemeine
Sonntagszeitung, a Sunday newspaper.
"Not so, howled the stalwarts of the city's
financial industry, including the local bosses of American
investment banks. Frankfurt is the most important continental
European centre, they insisted, even if most securities,
foreign-exchange and derivatives trading has moved to London. The
classic investment-banking disciplines, such as origination and
sales of debt and equity financing, and mergers and acquisitions,
still need bankers on the ground. Two American investment banks,
Goldman Sachs and Morgan Stanley, have hundreds of people in
Frankfurt.
"Yet Frankfurt once had greater ambitions: look
at the still-growing forest of bank headquarters known as
Mainhattan (after the Main, the river on which the city stands).
Dresdner Bank is building a second tower for which it has little
obvious use. Commerzbank, Germany's number-four bank, recently
opened a 500-desk trading-room, the biggest in Europe, that it
cannot fill.
"Frankfurters fear that they may lose their core
institutions. Dresdner is owned and run increasingly tightly by
Allianz, a big insurer based in Munich. Commerzbank is expected to
be bought sooner or later, perhaps by HVB Group, a Munich bank.
Although Deutsche Bank, Germany's biggest, denies that it would
ever quit Frankfurt, it relies heavily on investment banking,
which it runs out of London and New York. Its Swiss boss, Josef
Ackermann, last year showered at least $500,000 on New York's bid
to host the 2012 Olympic Games, overlooking Frankfurt's competing
bid.
"Frankfurt's defenders point to the city's
excellent infrastructure and its geographical position, right in
the middle of an enlarged European Union. Some powerful
institutions are there to stay: the Bundesbank and the European
Central Bank; KfW, a state-owned development bank; the agency that
manages government debt; Germany's biggest stockmarket; and the
securities arm of Germany's financial watchdog. An upswing would
soon fill empty offices, say many, and restore the self-confidence
of the late 1990s, the heyday of the Neuer Markt, Deutsche Borse's
now-defunct new- economy stockmarket.
Recovery, though, will not come without a
restructuring of Germany's banking sector. This is under way, up
to a point: despite labour laws that discourage lay-offs, banks
are shedding workers by the tens of thousands. But deep problems
remain. State-backed banks, with a 40% retail-market share, have
distorted prices for years and made corporate lending
unprofitable. A top marginal rate of income tax of over 50% is no
incentive for high-flyers to move to Frankfurt. The federal
government in Berlin and the local state government of Hesse, in
nearby Wiesbaden, have been slow to draft reforms that would
favour Frankfurt.
"The McKinsey crew may nonetheless have triggered
a positive response. Hans Eichel, Germany's finance minister, says
that the next Financial Markets Promotion Act, the fifth since
1990, will improve Frankfurt's competitive position and attract,
among others, hedge funds. Is this the same Mr Eichel who a year
ago railed against hedge funds because of their danger to
financial stability?"
[Source:
EIU Viewswire. January 31,
2002.
Faltering Finanzplatz.
Economist, 00130613, 2/1/2003, Vol. 366, Issue 8309.]
LIBOR vs. EURIBOR
"In the run-up to the launch in January of
Europe’s single currency, the euro, bankers in Frankfurt and Paris
have tried all sorts of tricks to rob London of business and
prestige. Their latest device is arcane but important: to gain
control of the interest-rate benchmark at the heart of Europe’s
money market.
For decades the uncontested benchmark for offshore
borrowing in the world’s most widely traded currencies has been
the London Interbank Offered Rate, known as LIBOR. Set by the
British Bankers’ Association and based on deals between a select
group of international banks, this is considered the standard rate
at which top-notch financial institutions will lend to each other.
But with Britain out of the euro’s first wave,
euro-area moneymen want their own index. So they have cooked up
EURIBOR, a rate calculated from a panel of around 60 banks, mostly
from euro countries, and backed by the European Banking Federation.
They plan to introduce EURIBOR in January, when the British will
roll out an updated “Euro-LIBOR”. Next week will see the start
of an advertising campaign grandly touting EURIBOR as 'a measure for
Europe'."
[Source: "The Battle of the Benchmarks."
The Economist Oct. 31, 1998. p. 80. In Lexis-Nexis.]
London
Stock Exchange plc
"The
London Stock Exchange (LSE) is Europe's largest stock market,
listing more than 2,900 stocks, depository receipts, warrants, and
Eurobonds -- nearly 20% from non-UK companies. The exchange, which
listed its shares in 2001, uses an order-driven system called Stock
Exchange Electronic Trading Service (SETS) to match buy and sell
orders via computer, so there is no trading floor. The LSE includes
a main section, a high-growth market (AIM), technology stocks (techMARK),
and an investor-oriented market. The LSE appears to be losing the
battle to become a pan-European exchange: A planned merger with the
Deutsche Börse collapsed, then LSE lost its bid for futures exchange
LIFFE to Euronext."
[Source: Company
Capsule: London Stock Exchange plc. Hoover's
Online UK.]
London Stock Exchange
Loses It's Bid for LIFFE
"JEAN-FRANCOIS THEODORE, the head of Euronext,
is a surprise winner. The London Stock Exchange (LSE) was widely
expected to triumph in the bidding for Liffe, London's derivatives
exchange. Yet on October 29th the board of Liffe recommended that
its shareholders accept a £555m ($806m) offer from Euronext, the
three-way merger between the Paris, Amsterdam and Brussels stock
exchanges. Although Euronext's offer was less than the LSE's, it was
all in cash (not in combination with shares). It also promised to
retain Liffe's management, and to shift all of Euronext's
derivatives business to London to trade on Connect, Liffe's trading
system. That combination made it unbeatable.
"Euronext's coup is a blow for the LSE,
which had hoped that buying Liffe would strengthen its position in
the forthcoming consolidation of European stock exchanges. But the
LSE misplayed its hand, advertising its interest for too long in
advance and then quibbling over too many details with Liffe's
management. It will now have to find some other strategic option
if it is not to become prey to one of its rivals. Setting up its
own derivatives business will be hard: it might instead seek to
buy one of the American exchanges, perhaps the Chicago Mercantile."
[Source: "After Liffe." The
Economist. November 1, 2001. In Factiva.]
