Banks Bring Jobs to London as Finance Pays Most Tax in U.K.
Goldman Sachs Group Inc. (GS) employs almost as many people in London today as it did in 2007, before Lehman Brothers Holdings Inc. (LEHMQ) filed for the biggest bankruptcy in history, sparking a global recession.
Goldman Sachs isn’t alone. Royal Bank of Scotland Group Plc (RBS), recipient of the world’s biggest bank bailout, has more workers in its securities unit than four years ago. Barclays Capital, under Robert Diamond, hired 1,800 in 2010.
Investment banks in Europe’s financial capital are adding jobs, helping to bolster headcounts at law and accounting firms across London, as the rest of Britain struggles to recover from the worst economic contraction since the 1930s. Chancellor of the Exchequer George Osborne has little alternative except to do all he can to keep companies such as Barclays Plc (BARC) and HSBC Holdings Plc (HSBA) from leaving London.
“We want London to remain a global financial center, and one that will continue to flourish and grow because of the employment it brings,” Treasury minister Mark Hoban said at a conference in the City of London last week. “We want to see more employment in the U.K., not less and I think a blooming financial services sector can help deliver that.”
The industry accounted for about 10 percent of Britain’s economic output in 2009, up from 7.7 percent in 2006, and paid the most in corporation tax last year, according to the government. Financial firms generated about 11 percent of the nation’s tax revenue in the year ended March 2010, contributing 53.4 billion pounds ($87 billion) in corporation, sales and employee taxes, according to a report by PricewaterhouseCoopers LLP for the City of London Corporation.
“We want the City of London to remain the world’s leading center for financial services,” Osborne told lawmakers in Parliament today as he presented his budget. Still “prosperity must be shared across all parts of the U.K.”
The nationwide unemployment rate based on ILO standards rose to 8 percent in the three months through January from 7.9 percent in the three months ended October. In London’s City and Canary Wharf districts, the number of workers will rise to 318,000 in 2011, from 315,000 in 2010 and 305,000 in 2009, according to the Centre for Economics & Business Research Ltd.
Accounting firm KPMG LLP plans to increase its London headcount to 14,000 from 11,000 in the next three years, while PricewaterhouseCoopers raised the number of graduate and internship openings it has in 2011 to a record of more than 1,600. Deloitte & Touche LLP plans to add about 1,500 employees in the U.K. this year.
‘Sense of Normality’
The number of partners hired at London-based law firms rose 28 percent in the first seven months of 2010 from the prior year, according to data from Motive Legal Consulting and LegalMoves.
“A sense of normality is returning to the market,” said Mark Cameron, chief operating officer of London-based recruiter Astbury Marsden. “I don’t think you will see the outright bullishness of 2007 where the sky was the limit and everyone kept growing because they had to.”
HSBC, Barclays and Standard Chartered Plc (STAN), three of Britain’s biggest banks, had combined profits of 14 billion pounds last year, excluding asset sales, up from 8.3 billion pounds in 2009.
RBS, the largest lender owned by the government, expects to post its first annual profit in 2011 after three years of losses, Chief Executive Officer Stephen Hester said last month. Lloyds Banking Group Plc (LLOY) may almost double pretax profit in 2011 to 4.1 billion pounds, according to the median estimate of 21 analysts surveyed by Bloomberg.
U.K. taxpayers have invested 45.5 billion pounds in RBS for an 83 percent stake and 20 billion pounds in Lloyds for a 41 percent holding.
The increase in jobs occurred as Barclays, HSBC and Standard Chartered said last year that government attempts to force their breakup or raise taxes risked triggering an exodus from London.
John Vickers, chairman of the government-backed Independent Commission on Banking, ruled out a full split of the lenders when he said in January that his panel was reviewing other ways to protect consumer deposits. The banking panel will publish its draft plans for the industry on April 11.
Prime Minister David Cameron is raising taxes and embarking on budget cuts that will slash 330,000 public-sector jobs during the next four years. As employment in finance rebounds to within 10 percent of 2007’s peak, the government’s emphasis switched from scrutinizing bankers’ pay, bonuses and tax contributions to counting on the banks, which required about 1 trillion pounds from taxpayers to shore them up, to lead the recovery.
Britain’s four biggest banks have said total bonuses for U.K.-based employees will be lower than last year and pledged to boost business lending in a bid to end what RBS’s Hester has called “banker bashing.”
Goldman Sachs employs about 7,500 people in Europe -- 6,200 of them in London -- according to Michael Sherwood, 45, co-head of the international unit and one of the New York-based firm’s vice chairmen. In 2007, Goldman Sachs had about 8,000 people in Europe, including consultants.
RBS employed about 17,600 people at its securities unit in 2007 and 18,700 in 2008 after the Edinburgh-based lender absorbed ABN Amro Holding NV’s investment bank. After falling to 17,900 in 2009, the total has since risen to 18,700, company filings show.
Barclays Capital boosted its headcount last year as it expanded the equity and mergers-advisory teams outside the U.S. following its purchase of Lehman’s North American operations.
“I would like to see U.K. financial companies employing more people, with a change of emphasis from making the most money possible to providing the best service with the highest integrity,” said private equity dealmaker Jon Moulton, who started his latest company, Better Capital Ltd. (BCAP), in 2009.
Jezz Farr, a spokesman for London-based HSBC, and Barclays spokesman Jon Laycock declined to comment on hiring. HSBC is Europe’s biggest bank and Barclays is Britain’s third largest.
Not every financial institution has increased headcount. UBS AG (UBSN), Switzerland’s biggest bank, employed 6,634 people in the U.K. as of Dec. 31, down 25 percent from 2007, according to the Zurich-based company’s quarterly filings.
The number of people registered with the U.K.’s Financial Services Authority as having a so-called approved function was at 172,077 in 2008, and fell to 166,420 in 2009 and 161,175 in 2010, the fewest since 2004.
“There is a more buoyant mood,” said Anthony Thomson, chairman of Metro Bank Plc, a consumer bank he co-founded with U.S. investor Vernon Hill. Metro Bank opened its first London branches last year. “The siege mentality of the past few years is receding and people are starting to say, ‘How can we create more value, how can we create new businesses?’”
Bankers are softening their rhetoric about leaving, with Barclays’s Diamond, 59, telling lawmakers in January that London is the “premier financial center in the world.” HSBC said March 7 it would prefer to keep its headquarters in London amid speculation the company is preparing to relocate, possibly to Hong Kong.
London is home to about 240 overseas banks, including the European bases for JPMorgan Chase & Co. (JPM) and Morgan Stanley. About 80 percent of Europe’s hedge funds and about 60 percent of the region’s private equity firms are based in Britain. The U.K. also accounts for about 37 percent of global foreign exchange trading and 46 percent of all trading of over-the-counter interest rate derivatives, according to lobby group TheCityUK.
As regulators such as the Basel Committee on Banking Supervision introduce rules aimed at preventing a repeat of Lehman’s collapse, banks are hiring people with regulatory and reporting expertise, Astbury Marsden’s Cameron said. The so- called Basel III rules, endorsed by world leaders in November, require banks to have common equity equal to at least 7 percent of assets weighted according to riskiness, up from 2 percent.
“Regulatory and reporting requirements are hot topics at the moment,” Cameron said. “They are on very tight timeframes to implement those, so there’s quite a focus in the banks on dealing with that change.”
Job opportunities for people working in compliance rose 26 percent in the three months ended Jan. 31, while those in consulting increased 29 percent, according to eFinancialCareers, a London-based careers website. Openings were up 41 percent in equities and 30 percent in fixed income, eFinancialCareers said.
“Anything to do with structured credit has disappeared,” said James Chappell, a financial-services industry strategist at Olivetree Securities Ltd. in London. “There is no demand for that type of product.”
Former London bankers are starting companies to profit from new regulation or areas where rivals have retreated such as lending. Vincent Dahinden opened a London-based firm in December 2008 to advise banks on derivatives and risk management as the U.K. government bailed out his former employer, RBS. Six months earlier, he left the Edinburgh-based bank, where he oversaw exotic derivatives traders.
Solum Financial Partners LLP may double its team of six former bankers by the end of the year, Dahinden said in an interview. Solum Financial values derivatives contracts when banks dispute prices and advises lenders on creating systems to manage the risk of their trading partners defaulting.
“We have recently advised a European bank” from “a governance, IT architecture, modeling, hedging, accounting, regulatory and best-practice perspective,” Dahinden said. This is “an area of hiring” opportunity within banks, he said.
Haymarket Financial LLP, the London-based provider of specialist financing to companies that’s part-funded by Jacob Rothschild’s RIT Capital Partners Plc, has hired about 30 people since it opened in 2009.
“Right now there are many more borrowers out there than lenders,” Haymarket CEO Tim Flynn said in an interview. “We’d be better off with more businesses like ours starting up because there is a need for more capital on reasonable terms.”
Stephen Welton, a partner at JPMorgan’s former private equity unit, was last month named CEO of Business Growth Fund Plc, a 2.5 billion-pound fund backed by the U.K.’s six biggest banks.
“Coming out of a recession is the ideal time to think about creating new capital sources for smaller businesses,” Welton said in an interview. “In 10 years time, I hope to look back at having created the funder of the future big businesses of Britain.”
Nasir Zubairi wants to create a new source of funding for U.K. companies. The former RBS and ICAP Plc electronic-trading specialist is starting London-based EuroTRX Ltd., a trade- receivables exchange, to help speed payment of invoices to companies with 1 million pounds of annual sales.
Zubairi wants to create an electronic market where new investors such as hedge funds and asset managers can buy invoices at a discount to face value from companies that sometimes wait 100 days for payment. The firm may expand to 30 people in a year, he said.
“Smaller businesses have a big problem raising capital,” Zubairi, 35, said in an interview. “We are trying to solve that by making invoice finance more accessible and transparent.”
Zubairi may be part of a wave of London financial technology innovators, including risk-management company Hyper Rig Ltd. and Funding Circle Ltd., an online market for people to lend directly to small businesses, said Julie Meyer, founder of London-based investment and advisory firm Ariadne Capital Ltd.
‘Spotting a Gap’
“New financial technology companies are emerging with entrepreneurs who see things that were either done wrong in the last credit cycle or who are spotting a gap,” Meyer said.
Entrepreneurs are even making money from people who want to quit the industry. Former Ernst & Young LLP consultants Dom Jackman and Rob Symington started a blog that turned into recruitment website Escape The City. They’ve placed finance sector workers with a beach lodge in Mozambique, a Mongolian investment company and a Ugandan non-profit.
“We felt like our jobs just didn’t matter to anyone,” said Symington, 27. “So we started a website to connect with people who felt like us and wanted an exciting alternative.”
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