Wall Street as we know it has gone as investment banks look for greener pastures


September 13, 2019 05:00:23

The changing face of New York high finance is perhaps best represented by 23 Wall Street.

It’s a prime spot on the corner of Wall and Broad Streets, opposite the New York Stock Exchange.

It’s on the corner for a reason. It symbolises “cornering the market” (owning enough of a stock to be able to control its price). Or at least that’s why major investment bank JP Morgan set up there in the 1990s.

Today, it’s vacant. Completely empty. JP Morgan ultimately pulled up stumps in 2000 and moved to midtown.

Every other bank, except Deutsche Bank, has either moved to midtown, elsewhere in greater New York, or out of town entirely.

To name a few: UBS is now on 6th Avenue and Park Avenue; Bank of America Merrill Lynch is on 42nd Street; Goldman Sachs is on West Street; And Citigroup sits on Greenwich Street.

Deutsche Bank is the last to go. It’s moving its New York headquarters from Wall Street to a location midtown, from late 2021.

The old Wall Street has disappeared

Perhaps when you think of Wall Street, you imagine tall sky-scrapers housing some of the biggest investment banks, and the richest investment bankers, in the world.

Or Gordon Gekko, the fictional high-powered investment banking character in the 1987 film, Wall Street.

Or the bustling New York Stock Exchange (NYSE), with share traders wearing colourful jackets scurrying from one side of the trading floor to another making deals.

But that Wall Street doesn’t exist anymore. The culture that defined it for decades and — except for the NYSE — its players have moved on.

Its evolution runs alongside a dramatic change in the way global trade and business is done, and, frankly, how the world of finance expresses itself — which is a major 21st century paradigm shift.

Apartments drive out bankers

“When you walk down Wall Street today, it’s all condos”, says Brian Barnier, director at ValueBridge Advisors.

“JP Morgan’s office building — that’s condos.

“Somebody’s got a bathroom where JP Morgan’s [John Pierpont “Jack” Morgan] office was.”

Wall Street real estate agent Julia Hoagland is selling rentals on the strip.

“Wall Street and the financial district have changed dramatically in the nearly two decades since September 11,” she says.

“In this time, the number of residents in the area has tripled to more than 61,000.”

“A healthy housing market and tax incentives motivated developers to convert commercial buildings to the more valuable residential product.”

The former AIG tower across the street from the NYSE and JP Morgan was made into rental apartments.

The owners of 60 Wall Street, which housed Deutsche Bank, have reportedly commissioned CBRE to market the tower’s 1.7 million square feet of office space to apartment developers.

And let’s not forget the famous 40 Wall Street, purchased by Donald Trump in 1995.

Mr Trump attempted to sell the building in 2003, but there were no takers.

“People are there to take pictures, but most of the businesses are in midtown or Jersey or Connecticut or the Florida economic development people are marketing like crazy to get you to move your business to Florida for tax advantages,” Mr Barnier says.

Investment banking industry reeling

The investment banks that once lined Wall Street, and gave it its mojo, have moved out for sound business reasons.

Put more bluntly, the investment banking industry has been struggling for years, and it hasn’t made any sense to occupy prime New York real estate anymore.

So why is the industry, the dirty deeds of which led to the global financial crisis, on its knees.

Mr Barnier, who has first-hand experience working in investment banking as an independent consultant, says the industry has traditionally leaned on three main sources of revenue.

Buying and selling companies, which was a major theme of the movie Wall Street, is one source of revenue. Much of this business has dried up.

Another huge revenue stream for investment banks has been their corporate advisory services.

“And they’re now getting more competition from the consultancy firms.” Think the big four accounting firms: EY, PricewaterhouseCoopers, KPMG and Deloitte.

And, of course, the now old-fashioned trading or dealing rooms are fast becoming obsolete.

“They’re shedding traders right and left, going more to algorithmic models [where computer-driven mathematical models buy and sell shares based on stocks meeting certain criteria].”

“Each one of those business lines is under a lot of pressure.”

Investing banking forced to evolve too

While the three revenue streams mentioned above are dwindling, they haven’t totally dried up. Investments banks are now just trying to find ways of rejuvenating them.

Mr Barnier spoke to the ABC as he was walking through midtown Manhattan one evening.

He says investment bankers used to frequent the glitzy restaurants of midtown Manhattan most nights of the week to seal the deal on big financial transactions.

“You look at what’s happening with acquisitions, if I were to walk into you as an investment banker, and say “I want a gob of money for flipping your company, or arranging a buyer for your company”, a lot of that was done in restaurants where I am right now which were filled with people tonight, and now they’re done over email.”

“A lot more is tech-driven. A lot more is done by attorneys trying to facilitate transactions.”

And what about the floor trading — the likes of which we saw in Hollywood movies?

For some banks, like Deutsche Bank, it’s been time to largely exit that game.

The bank announced in July that it was scrapping its global equities (share trading) and cut some fixed income (bond trading) operations.

Roughly 18,000 staff were shown the door.

For many banks, traditional floor trading has been combined with, or replaced by, algorithmic trading.

The speed of this trading and the large volume of transactions that are possible through this method have been put as reasons for some of the big market swings in recent years.

So where does this leave us?

Some might argue the scattering of investment banks around New York city represents these financial behemoths being kicked out of Wall Street — surely, the banks becoming more decentralised, more scattered, is a good thing.

After all, when the fictional character Gordon Gekko uttered the line “greed is good”, the movie captured the attitude of a Wall Street “club” whose risk taking behaviour would lead to the global financial crisis 20 years later.

And the slow decline of investment banking that’s come in its wake has made another “Lehman event” (the collapse of a “too-big-to-fail” investment bank) less likely. And that’s a good thing.

However, in the process, business confidence, both here in Australia, and overseas, hasn’t returned to the levels seen in the heady days of Wall Street’s prime.

And you could argue those who want to work more hours, or are keen to get a decent pay rise, are sorely missing that.







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