CONFIDENTIAL New York, May 2008 This report is solely for the use of client personnel. No part of it...

18
CONFIDENTIAL New York, May 2008 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion. New York’s future competitiveness as a global financial center Presentation to the Council on Foreign Relations Charles Roxburgh

Transcript of CONFIDENTIAL New York, May 2008 This report is solely for the use of client personnel. No part of it...

Page 1: CONFIDENTIAL New York, May 2008 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution.

CONFIDENTIAL

New York, May 2008

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

New York’s future competitiveness as a global financial center

Presentation to the Council on Foreign Relations

Charles Roxburgh

Page 2: CONFIDENTIAL New York, May 2008 This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution.

McKinsey & Company | 2

New York vs London – the view in 2006

Recent developments

Priorities to retain competitiveness

Three topics

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McKinsey & Company | 3

In 2006 there was growing pessimism about the prospects for New York City as a financial center relative to LondonDo you believe this city will become more or less attractive over the next 3 years?

More attractive

About the same

Less attractive

New York City

44

15

41

London

38

8

54

Ranking by responsePercent

Source: McKinsey Financial Services CEO Survey

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McKinsey & Company | 4

Regulation was an area of particular concern

Source:McKinsey Financial Services CEO Survey

Which regulatory environment is more business-friendly?

U.S. is much better

U.S. is somewhat better

About the same

U.K. is somewhat better

U.K. is much better

Rules InspireInvestorConfidence

Clarity of Rules

Fairnessof Rules

Uniformityof RegulatoryEnforcement

Simplicity ofRegulatorySystem

Cost ofOngoingCompliance

45

23

2

26

4

31

35

19

13

2

42

32

12

131

45

32

8

13

2

43

31

7

14

5

Ranking by responsePercent

33

34

14

16

3

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McKinsey & Company | 5

Several reports helped created a consensus on the diagnosis….

Source: McKinsey

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McKinsey & Company | 6

. . . and a consensus has emerged on necessary actions….. Supports

Drafting+

Principles-based regulations

Better regulatory coordination

Prudential supervision

Securities litigation reform

Accounting reforms/IFRS

SOX reforms

CCMRBloomberg-Schumer Chamber Roundtable Treasury

+

+

+

Source: McKinsey

?

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McKinsey & Company | 7

. . . and a consensus has emerged on necessary actions….. Supports

Drafting+

CCMRBloomberg-Schumer Chamber Roundtable Treasury

New & modernized charters

National Commission to study further

+

Regulatory structure rationalization/ consolidation

Immigration reforms for skilled talent, business travellers

Source: McKinsey

National Commission to study further

?

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McKinsey & Company | 8

New York vs London – the view in 2006

Recent developments Impact of the Crisis Developments in London

Priorities to retain competitiveness

Three topics

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McKinsey & Company | 9

Industry revenues pools 2006 – or, where was the money being made?

19

12

17

46

7

5

2112

1926

5

12

Commodities 3

Credit

120123

DCM

ECM

M&A

US

FX

Rates

21

6

10

Europe

12

5

9

5Prop Trading 7

Sec Lending

Equity Derivatives

Cash Equities

Primary

Secondary Fixed Income

Secondary Equities

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McKinsey & Company | 10

Where has the crisis hit……

19

12

17

46

7

5

2112

1926

5

12

Commodities 3

Credit

120123

DCM

ECM

M&A

US

FX

Rates

21

6

10

Europe

12

5

9

5Prop Trading 7

Sec Lending

Equity Derivatives

Cash Equities

Primary

Secondary Fixed Income

Secondary Equities

Revenues from primary and secondary credit34% of US 20% of Europe

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Three scenarios

SteadySteadyrecoveryrecovery

US & UK recessions short and mild; Europe escapes slow-down and Asia remains decoupled

Credit markets recover in H2 2008; low prices attract sophisticated buyers; liquidity and confidence returns

Limited additional credit losses in Q2 2008 and beyond (~$400-500 bn) Securitization volumes pick up in H2 2008; full recovery by 2010 Investment bank earnings bounce back in 2009

LongLongchillchill

US & UK experience moderate 2 – 3 quarter recessions; Europe and Asia slow but avoid full recession

Credit markets remain depressed throughout 2008 and first half 2009 Total US credit losses in mid range (~$800-$900 bn) Securitization recovers in 2009, but largely “vanilla” structures Further capital raising by banks to repair balance sheets Some minor banks require rescue/bail-out

Protractedworkout

US & UK experience prolonged recessions; Europe and Asia become coupled given slow down in world trade

Credit markets remain depressed throughout 2008 and 2009 Total US credit losses toward top of range (>$1 trillion) Securitization doesn’t recover and banks unable to expand lending to fill gap;

shortage of credit exacerbates economic slowdown Large scale capital raising by banks; further government interventions

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McKinsey & Company | 12

Industry revenues under "The Long Chill" scenario

20

24

22

2631

22

32

34

4448

16

15

12

13

13

3813

96

107

51

11

2007

123

369

63

2006

315

126

122

2005

244

96

2008

+0%

Western Europe

North America

Lat.Am., CEEMEA

Non-Japan Asia

Japan

299*

316

132

93

2009

299

125

91

2010

255

Note:2007 and 2008 results include estimated write-downs

Source: McKinsey Global Capital Markets Revenue Pool, team estimate

Projected revenue from 2006 - 10Global, $ Billions

Pre-write-down result

229

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McKinsey & Company | 13

REGIONAL MIX OF GLOBAL REVENUES BY SCENARIO IN 2010, PERCENT OF GLOBAL TOTAL$ Billions "Steady

Recovery""The Long

Chill"

5

18

10

29

39

430

2010

4

20

10

28

38

305

2010

A shift towards emerging markets is observed under all scenarios

5 6 7

6 5 5

10 12 14

39

39

248

2005

38

39

321

2006

35

40

373

2007

Japan

Non-Japan Asia

Lat.Am,CEEMEA

North America

Western Europe

Source: McKinsey Global Capital Markets Revenue Pool, team estimate

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McKinsey & Company | 14

Developments in London

Weaknesses exposed in UK regulatory structure▢ Lack of clarity in ‘Tri-partite structure’▢ Northern Rock crisis

Proposed tax reforms undermine ‘pro-business’ image▢ CGT▢ ‘Non-dom’ status▢ Corporation Tax

Growing concern about competition from other centers▢ Asia▢ Middle East▢ Europe

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McKinsey & Company | 15

New York vs London – the view in 2006

Recent developments

Priorities to retain US competitiveness

Three topics

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McKinsey & Company | 16

U.S. now faces a clear choice – bold reforms

Clarify financial market objectives

Move to principles-based and prudential regulation

Enhance regulatory coordination

Reform securities litigation

Modernize charters

Streamline and consolidate agencies

Continue accounting and auditing reforms

Improve immigration policies to ensure needed skills

Source: McKinsey

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McKinsey & Company | 17

U.S. now faces a clear choice – bold reforms . . . or just muddle through

Clarify financial market objectives

Move to principles-based regulation & prudential supervision

Enhance regulatory coordination

Reform securities litigation

Modernize charters

Streamline and consolidate agencies

Continue accounting and auditing reforms

Improve immigration policies to ensure needed skills

No clear national objectives

Continue rules-based regulation with emphasis on enforcement

Rely on ad hoc, reactive coordination among agencies

Keep litigious legal environment

Leave charters unchanged

Maintain current complexity and overlap at national and state level

No further accounting or auditing reforms

Leave immigration unchanged

Source: McKinsey

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CONFIDENTIAL

New York, May 2008

This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from McKinsey & Company. This material was used by McKinsey & Company during an oral presentation; it is not a complete record of the discussion.

New York’s future competitiveness as a global financial center

Presentation to the Council on Foreign Relations

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