London’s status as one of the most important financial centers in the world is under threat.
Since I can recall, doom-mongers revelled in the prediction of the Square Mile’s death, only for the capital not to lose and to retain its crown.
London’s status isn’t as certain now, however. It seems that London is losing its status as a global capital hub has been eroded. This is despite the alarming exodus from the States of large companies lured by the perception of a more pro-business environment under Joe Biden.
After announcing plans to move its main share listing from London Stock Exchange to New York, CRH , a building supplier, has received the latest blow.
This is enough to be damaging. London will not want to lose such an enormous company with a market cap of $30bn. The reason for the company’s departure will cause Treasury officials to have nightmares. LSE boss David Schwimmer should also be awake at night because of Biden’s historic subsidies blitz for American manufacturing and industry.
CRH states that the president’s Infrastructure Investment and Jobs Act is one of many pieces of significant legislation that make up the heart of a bold economic agenda. It offers opportunities in a wide range of areas.
To boost US manufacturing capacity and accelerate its path to net zero, the Biden administration has set aside trillions in tax credits and grants from the government to help bring America’s crumbling infrastructure into the 21st Century.
It wants to create high-quality, well-paid jobs and maintain technological supremacy over Beijing.
A total of $1.2 trillion (PS1 Trillion) has been allocated for road-building, telecommunications and water networks. There’s also a $360bn pot to purchase green producers and electric cars; and another $280bn for the revival of the American semiconductor industry.
Biden’s Industrial Plan is bold attempt to remake the American economy while also tackling climate change. However, it could dramatically alter global trade.
It is not only a bid to boost domestic industry, but also a bold attempt to attract foreign companies across the Atlantic to support the Government’s ambitious plans.
It seems that Oddly Schwimmer isn’t losing sleep over this. He said that companies will make decisions when the majority of their business is located in the US. This sounds like a very defeatist attitude to have for the boss at one of the largest bourses in the world.
If Schwimmer didn’t notice, CRH is not an isolated incident. There is actually a lot of steam building, as a large number of blue-chip firms form a line to exchange London for New York.
There are many logical reasons for this – CRH does three quarters its business in North America, as an example – but also technicalities like better valuations or greater share liquidity. There is no doubt that the US is becoming more attractive as a place to do business.
As CRH packed its bags, it was revealed that British chipmaker champion Arm had selected the Big Apple to list on a stock market because of the US’s longstanding interest in technology stocks.
Flutter, a gambling giant valued at £22bn is planning to list secondary US stock initially, but it will keep an eye on the primary US quote. Schwimmer should hear Peter Jackson’s warning that the reasons for Flutter’s success “are not unique” from his boss. Many more, say investment bankers.
The concern was mainly about London losing out on New York in the battle for technology stocks, but America won that fight long ago.
The LSE is still heavily dominated and dominated by companies that are focused on the old economy – almost 50pc of FTSE 100’s weighting remains in energy and utilities.
Many of them have found a huge incentive to stick with the “Build Build Build” mantra by Biden. There’s always a herd mentality towards big business, so it is harder to persuade others to leave.
Shell was reported to have thought about eloping. Although it chose London in the end, losing such a significant component of the FTSE 100 would be a catastrophe.
The history of America’s tech scene is a stark lesson in institutional complacency. Although Silicon Valley was well-established at the time of the dotcom boom, it wasn’t inevitable that Wall Street would become such an important hub for tech capital. Because the US moved faster and created a more appealing environment, it won.
There is a risk that this will happen with heavy industry and manufacturing, and London has always been known for being a place where these kinds of companies can thrive. It is necessary to coordinate efforts to reverse the trend and to create a plan to attract new companies.
Recent reports that investors are pushing Marvel Fusion, an European start-up creating zero-carbon fusion power for the US, do not bode well. Moritz von der Linden, founder of Marvel Fusion, recently stated that Biden’s Inflation Reduction Act had “completely altered the level playing fields”.
The LSE can take specific steps to restore London’s glamour. But it requires decisive government action too. Britain could be left behind by Brussels’ proposal to relax state aid rules for green projects.