Imagine a world in which Jamie and Lloyd and, uh, new Citigroup chief executive Michael Corbat take one last look at their tax bills and compensation costs, wave goodbye to those pesky New York State prosecutors and slip out of town. Imagine a ghost city of Midtown office buildings, a city where food trucks don’t serve lobster rolls, people actually use the best seats at Yankee Stadium, and models pay for their own bottles. Picture newspapers bereft of financial scandal, gossip sections subsisting on the political ambitions of sitcom stars and the real estate exploits of celebrity chefs and football coaches. Peer into an abyss in which tax revenues plummet, firehouses and police precincts close, streets go uncleaned, and artists and writers move back into Manhattan. Think what would become of Brooklyn!
New York without Wall Street: Picture that. Just as manufacturing jobs moved to Shanghai and call centers shifted to Bangalore, the banking jobs that for decades have represented the beating heart of New York’s economy could soon migrate to other cities.
It’s not just labor costs, but in a city where the average securities industry worker made $363,000 last year, according to the New York State Comptroller’s office, labor costs aren’t moot. Neither are high taxes, or a string of prosecutors who’ve sued Wall Street all the way to the governor’s office. As second-tier towns and the rising financial centers of the Far East eat away at New York’s lower-paying jobs, all the cultural cachet may not stave off the end of Wall Street.
“Banks are moving jobs out of the city as fast as they can,” said Richard X. Bové, a banking analyst at Rochdale Securities. “If New York didn’t have such a sunk investment, all those office buildings, all the houses people live in, would this industry select New York as the place they’d like to operate from? The answer is no.”
It was already decades ago that banks started shifting back-office jobs to points as near as Jersey City and as far as Pune, India, and now, middle-office operations appear to be following suit. JPMorgan is growing in Delaware, Deutsche is building out Jacksonville, and Goldman Sachs has expanded its Salt Lake City operations to house increasingly high-skilled workers.
Citigroup, Mr. Bové told us, is already the third largest employer in Singapore, which is emerging as a financial hub of Asia. According to a survey conducted by British recruiting firm Astbury Marsden, 31 percent of investment bankers polled said that Singapore was their preferred place to live, ahead of 20 percent for New York and 19 percent who tabbed London.
New York and London are still tops in the minds of corporate executives, according to a recent study by PricewaterhouseCoopers and the Partnership for New York City, but Asian cities are gaining ground. The study ranked Beijing and Shanghai in the top five for economic clout, and found that Singapore’s livability factor boded well for attracting professionals in the decades to come.
One New York-based banker who took higher pay and a fast track to promotion to move to Singapore told us that his investment bank did everything it could to make the transition seamless. “They had the same desks, the same carpeting, the same color schemes,” he said. “The pantries were full of American products.”
Closer to home, Goldman Sachs is hiring in Utah. “If you make $250,000 in New York, you can probably make $150,000 in Salt Lake City and live infinitely better,” said Mr. Kotkin. Is it really worth living high on the hog if you have to do it in the Mormon capital? “You’d think it would be hard to get them to Salt Lake City. But if you like skiing and have kids and want a nice house, it can be pretty damn nice.”
The Observer spoke to one recent business school graduate who turned down opportunities at New York investment banks for a finance job in a Southern city. He traded in his 1½-bedroom downtown apartment for a 3,000 square-foot house. In Manhattan, he said, “you spend $40,000 a year on a tiny apartment, another $50,000 on private schools. It doesn’t leave you much left to feed yourself, let alone save for retirement.”
A New York banker who said he’s contemplated moving to Denver or San Francisco for the great outdoors told us that he notices the superior quality of life young financiers enjoy in lesser burgs. “The junior-level guys in Baltimore all drive BMWs,” the mid-level executive told us. “In New York, they’re living in 600-square-foot apartments.”
New York isn’t just more expensive for workers, of course. The city carried the nation’s highest commercial asking rents in the third quarter of 2012, according to commercial real estate firm Cassidy Turley, with average prices of $58.77 per square foot, some 16 percent more than Washington, D.C., the next most expensive city, and more than three times the cost of space in Charlotte.
Not that costs are the only issue. New York State authorities have made waves in the banking industry twice in recent months, first when Department of Financial Services chief Ben Lawsky broke ranks with federal regulators and charged Standard Chartered with violating U.S. sanctions with Iran, then again when Attorney General Eric Schneiderman sued JPMorgan over the mortgage-packaging practices at Bear Stearns, which the House of Dimon acquired in 2008.
“In New York,” Mr. Bové told us, “whoever attacks the industry most gets elected governor, so they do it. In other states, the population says, ‘This is where the jobs are. We’re not going to attack the livelihood of our biggest industries.’”
He had a point: Eliot Spitzer and Andrew Cuomo won their seats in Albany after putting notches on their revolvers as sheriffs on Wall Street. A little further back, Rudolph Giuliani became a Wall Street pariah by prosecuting securities workers as the U.S. Attorney for New York’s Southern District.
The political question may soon hit closer to home. In a year, New Yorkers will elect a new mayor, a leader who may be many things that Mike Bloomberg is not—tolerant of the press, fluent in Spanish and accepting of our minor vices or bad habits—but who will almost certainly fail to understand or stick up for Wall Street to the degree Mayor Bloomberg has.
Hizzoner, of course, didn’t merely arrive at City Hall out of the same professional and social circles as the city’s financiers, he also popularized a wave of technological innovation that transformed Wall Street. He’s something of a talismanic figure, a one-man argument that the city appreciates the benefits that Wall Street brings.
Mr. Bloomberg opposed the Dodd-Frank regulations and then delivered a pep talk at Goldman Sachs on two days after Greg Smith published his infamous New York Times Op-Ed announcing his departure from the firm; it’s also worth remembering that thousands of financial services pros in New York alone sit in front of desk monitors bearing the mayor’s last name.
“To the extent that the financial services industry feels it has leadership in city government that will speak up for them when they get demonized in Washington or elsewhere, Mayor Bloomberg has been a uniquely qualified and successful leader,” Kathryn Wylde, president and CEO of the Partnership for New York, told us. “It goes a long way to make up for the disincentives, the high-cost, high-tax, high-rent characteristics, if you have a mayor who understands and is willing to use his position to advocate for the industry.”
If Wall Street did leave New York, then what? Securities workers account for 5.3 percent of private sector employment but contribute 14 percent of state tax revenues, according to a recent report by New York State comptroller Thomas P. DiNapoli, and any discussion of what the city stands to lose if finance sector jobs migrate starts there.
“It hits every possible part of the economy,” Ronnie Lowenstein, executive director of the city’s Independent Budget Office, told us. “From the high-end apartments that change hands to the corner grocery store or the guy who’s shining shoes. If they’re buying their diamonds from Tiffany’s, eating at our restaurants and going to our shows, they’re doing things that support our economy.”
No one is saying all of that will suddenly disappear. Nearly every source we contacted for this story stressed New York’s enduring appeal to top talent. Even Mr. Kotkin, a champion of the notion that industries will decentralize in the age of technology, acknowledged that deal-makers were likely to remain in New York and London. “They have to show off in the locker room,” he told us.
Meanwhile, former Gov. Eliot Spitzer, host of “Viewpoint” on Current TV, played down the regulatory concerns. “There’s a world out there that thinks the regulatory environment is oppressive, or too difficult. Most of that is hot air.” Could other cities use New York’s recent run of Wall Street cops to lure banks? “What are they going to say?” Mr. Spitzer asked. “‘Come here, commit fraud’?” After a pause, he added, “That would probably work.”
Even if the banks don’t shift their brain trusts to points south or east, the city will have to figure out how to keep hold of the industry’s middle-class workers, or find a way to replace them with good-paying jobs in other industries such as health care or tech. According to Ms. Wylde, the average salary in New York City’s financial services industry is about $78,000. City and state tax coffers may depend on the high wage earners, middle-class workers drive quality of life.
“These are the jobs that keep a strong middle class in the city,” Ms. Wylde said. “They affect the quality of neighborhoods and overall city services.”
Still, we can’t help but wonder. Mr. Bové reminded us that the energy industry left New York for Houston decades back and that manufacturing plants abandoned his home state of Massachusetts. “All those giant shoe factories in Lowell are residences now,” he told us. What if 270 Park Avenue or 200 West Street were transformed into trendy condo buildings? (“David Viniar managed Goldman’s balance sheet from this living room!” goes the sales pitch.) On the other hand, there probably wouldn’t be anyone left who could afford them.