London's Economy Slows as Banks Fire 34,000 People (Update2)
By Christine Harper
London, Jan. 21 (Bloomberg) -- After losing his $120,000-a- year job at Deutsche Bank AG in July, Markus Stadler cut spending on sports, restaurants, taxis and nights out.
``In the past, I was going out maybe two or three times a week to up-market nightclubs such as Chinawhite and Attica,'' said the investment banker, who is selling his apartment in Maida Vale, west London. ``Now, it tends to be the pub.''
The 23-year-old is one of 34,000 people in London's financial district -- 10 percent of the total -- who will have lost their jobs in the three years to mid-2003, according to the Centre for Economic & Business Research. Bonuses for investment bankers, among the best-paid people in finance, were last year slashed by an average of about 50 percent.
The London cutbacks at such banks as Merrill Lynch & Co. and Credit Suisse Group are having a ripple effect in the world's fourth-largest economy. Two U.K. jobs are lost for each one that's eliminated in London's financial district, known as the City, the CEBR estimates. The contraction in Europe's biggest financial center is leading to less spending on housing, restaurants, taxis as well as other goods and services.
Growth in output from manufacturers and services slowed to 1 percent last year from 2.6 percent in 2001, according to Bridget Rosewell, an economic adviser to the Greater London Authority, which helps manage the U.K. capital.
Bankers' Pay
London bankers earn, on average, some 75,000 pounds ($120,000) excluding bonuses, three times the national average. The business they generate accounts for about a fifth of the capital's $200 billion economy.
``Bankers are the money people, the spending people,'' said Colin Turner, a London cab driver for 13 years who estimates that business is at the lowest level since the 1991 Gulf War.
New York and Tokyo, the world's other major financial centers, are also feeling the effect of a slump in businesses such as mergers advice and initial public offerings, which dropped by more than a quarter in 2002. About 100,000 banking jobs worldwide were eliminated last year.
Half the 46,000 London jobs lost in 2001 -- the latest year for which official figures are available -- were in the City, a report published today by Rosewell of the GLA said.
A government report Friday will probably show the slide in financial services is leading to a slowdown across the country. U.K. fourth-quarter GDP growth probably dropped to 0.5 percent from 0.9 percent in the previous three months, analysts surveyed by Bloomberg News estimated. The most recent government figures on gross domestic product for London date back to 1999.
House Prices Fall
London's buoyant housing market, which helped boost economic growth and inflation in recent years, is easing. House prices in the capital rose 3.8 percent in the fourth quarter, down from 7.3 percent in the previous three months, according to mortgage lender Nationwide Building Society. And prices are now falling at the top end of the market.
The value of houses worth more than 2 million pounds has declined by as much as 15 percent in districts such as Notting Hill and Holland Park, said Tim Wright, a director at real-estate agent Savills Plc. In west London, more than 40 percent of such homes are sold to people in financial services, making those properties ``very exposed to the City,'' he said.
The slide in banking hasn't affected all of London's economy. Tourism is recovering from a post-Sept. 11 slump. The number of overseas visitors to London rose 4.3 percent in 2002, the London Tourism Board estimates. Harrods Department Store Co. and Selfridges Plc reported higher sales in the holiday period.
Gulf War
``There has been an impact on the London economy from cuts in the financial sector and the reduction of bonuses,'' London Mayor Ken Livingstone said at a press conference today. ``All bets are off if we have a war in the Gulf. But as things stand, we do not assume the London economy will worsen.''
Services tied to finance have been the worst affected.
Thistle Hotels Plc, London's biggest hotel company, said its Tower Bridge outlet was among its poorest performers -- because it serves investment bankers. ``The traffic between New York and London has been hit by the dearth of activity in M&A and IPOs,'' said Ian Burke, chief executive officer of Thistle Hotels.
Canary Wharf Group Plc, and other property companies that serve financial services companies, are seeing office rent prices decline. The price per square foot in the City has dropped to about 50 pounds from a peak of 63.50 pounds in 2001, and there will probably be another 10 percent drop this year, according to Andrew Penny, an analyst at J.P. Morgan Chase & Co.
Perks Stopped
Deliverance, which specializes in catering for corporate clients, has lost three of its five biggest customers in the financial district. Banks and law firms ``just stopped having evening food as a perk,'' said Rohan Blacker, a director.
Holmes Place Plc, Champneys and other gyms targeted at richer clients have lost members. Holmes Place said earlier this month that it ended last year with 40,000 fewer members than it had predicted in its initial forecasts for last year.
``We've seen a number of resignations from membership because of redundancies,'' said Ian Richardson, general manager at Champneys CityPoint at Moorgate, in the City. Richardson's cheapest membership package is now 145 pounds a month, down from 175 pounds, and he replaced a seated catering area with a cheaper take-out-lunch counter.
Some of London's most fashionable restaurants are losing customers. Signature Restaurants Plc, owner of The Ivy and Le Caprice, agreed in October to be bought by management after its shares plunged more than 70 percent in two-and-a-half years.
Investment bankers are also feeling less charitable. They donated 1.02 million pounds to Save the Children at an annual awards dinner hosted by Thomson Corp.'s International Financing Review magazine earlier this month, 24 percent less than the 1.34 million donated last year to the same charity, at the same event. |
