An urban exodus, perplex bankers, political vagaries, and ruthless competition are taking their toll on financial centers. The pandemic is an accelerator of an epic, irrevocable structural shift.
Some bankers have no intention of returning to physical office space, others don't know whether their roles will survive the forthcoming cull, while banks are moving whole divisions from one country to another – the coronavirus has cast a pall over the continent's and U.K.'s once dynamic financial centers, as images show.
The emptiness comes against the backdrop of surging credit defaults as well as higher spending, as finews.com reported. The pandemic is playing out alongside ongoing digitization in the banking industry. The changes come at the expense of traditional financial centers – including Switzerland's storied banks and wealth managers.
Potent investors are experimenting with new work models in holiday hideaway, as finews.com reported, while banks in Zurich and Geneva are heading for the outskirts. Pictet is heading for an urban development project, Praille Acacias Vernets, in Geneva's Carouge neighborhood. It will move as many as 900 employees over the next five years.
Hometown rival Lombard Odier is also building a new headquarters in Bellevue, outside of Geneva's center, which can house 2,600 employees. «We will welcome our clients in a remarkable site which is easy to reach,» said Patrick Odier, the private bank's senior partner.
Spending is one accelerator of the epic shift, but the exodus also illustrates that the carefully-cultivated allure of financial centers is coming to an end. The reasons are manifold:
1. Global Nomads
Wealthy individuals and families typically have several main residences and want to «multi shore» their banking as well. The days of seeking out one specific financial center to handle nearly everything are over for them.
2. Emerging Market Demands
Less than a dozen financial centers dominated global money management until roughly 25 years ago: they included London, New York, Tokyo, or even Genf. Singapore's ascendency shows that any city or center has the infrastructure to build and foster a financial center – and the more wealth is generated in Asia, the more emerging markets will long to carve out a profile for themselves (see point 6).
3. Political Uncertainty
Political developments that were unthinkable ten years ago are spurring the end of financial centers. The best example is London, the influential heart of Britain's finance industry. The 2017 popular vote to leave the European Union has cost the City its attractiveness (see point 4). Wealthy clientele is looking to move funds from London – even into the EU – due to the political sensitivity.
4. Money Flees
Banks are also rethinking their commitments in view of the uncertainty. The best example is Hong Kong – until recently a titan among financial centers alongside New York and London. But since China has taken a firmer grasp of the territory, banks are mulling moving staff to less tumultuous centers in Asia. Closer to home, J.P. Morgan recently set a benchmark when it moved 200 billion euros ($233 billion) of its assets from London to Frankfurt – making it Germany's sixth-largest lender, as «Bloomberg» reported.
5. Reluctant Expats
If certain finance jobs were considered a privilege and opportunity to get to know another part of the world, more and more bankers are reluctant to take on expat life. The pandemic's restrictions on travel have put the kibosh of regular visits to family back home and political vagaries (see point 4) are another hindrance. London bankers who had previously been willing to discuss heading for any of the rivals to emerge after the Brexit vote – Dublin, Frankfurt, Luxembourg, Madrid, Paris – are now balking, as the«Financial Times» (behind paywall) reported.
6. Aggressive Competition Among Centers
Because more cities are making their ambitions to cater to finance known, an aggressive competition among financial centers is breaking out. It is not just Seoul and Kuala Lumpur facing off against Hong Kong, but Astana (Kazakhstan) or Gujarat in India. More and more cities are proclaiming their right to be a financial center.
7. Digitization Vs Physical Presence
The coronavirus is providing digitization the biggest surge of momentum possible – laying bare that physical presence is often superfluous. What does that mean for Switzerland?
The alpine nation's strengths are political stability and neutrality, rule of law, an unpegged currency, a highly-skilled labor force, internationally competitive higher institutes of learning, an environment that is very business-friendly, and an easily accessible location in the heart of Europe (but outside the bloc). This framework is rounded by soft factors like widespread bilingualism and a very high quality of life.
A Switzerland «Experience»
This won't be enough for a financial center to stand out in the future – new, more innovative advantages will be needed (finews.com outlined a few). These include data security or virtual assets and other technological advances like blockchain. A «trusted counterparty» in a digital age is worth at least as much as a secure banking relationship, Swiss finance professor Sita Mazumder told finews.com.
In general, Switzerland can only survive as a financial center of the future if it manages to convert banking into an «experience» – using its expertise and existing quality standards as well as fostering a hub for sustainable investing. Demand for this type of vehicle is surging since the pandemic, which represents a massive opportunity for Switzerland.
