BY RICHARD BEALES

Fuggedaboutit. That’s what London and New York would love to do with Covid-19. It won’t be easy in the new year. But the two financial capitals should start to see urban buzz return.

The cities remain atop the Global Financial Centres Index. Both nonetheless face big challenges, from budget shortfalls to difficult property markets and cash-strapped transport systems. They will also both elect mayors in 2021.

London, also vulnerable to Brexit, saw its housing market dry up during coronavirus restrictions. Partly thanks to tax breaks, though, prices have so far held up on year-on-year comparisons, the UK House Price Index shows.

Housing transactions in the Big Apple have also slowed dramatically, though median sale prices in the third quarter were flat or up compared with a year earlier in Manhattan, Brooklyn and Queens, according to Douglas Elliman. Rents are down but may have found a floor: New Manhattan leases rose 30% in November on the year.

Commercial property vacancies are up and rents and investment transactions down since before the pandemic on both sides of the pond. Subway ridership in New York remains down about 70% from a year ago. Even bridge-and-tunnel road use is still off by around a fifth, according to Metropolitan Transportation Authority figures. Two-thirds fewer people took the London Underground in October, Transport for London says.

Transportation is one of few London features over which Mayor Sadiq Khan – favorite to win re-election in May– has greater influence than New York counterpart Bill de Blasio, who will leave in 2021 because of term limits. Khan negotiated a bailout of TfL with the UK government. The MTA is the responsibility of New York State.

Khan’s job is more about corralling central government and individual boroughs on behalf of London’s residents and businesses. De Blasio, in contrast, has a near-$100 billion operating budget and needs to replace tax income lost in the pandemic. New York is, for example, asking bond investors for some $1.5 billion of cash in mid-December. A week before the offering, Fitch Ratings downgraded the city’s credit, saying Covid-19 damage could linger.

New York had doubters after Sept. 11, to cite just one instance, and London so far hasn’t succumbed to worst-case Brexit scenarios. Both have shown over centuries that they can bounce back from the Black Death, storms and other disasters. With vaccines offering hope of subduing the coronavirus, the cities’ next mayors should see that start to happen.

First published December 2020

BY ROB COX

For many on Wall Street, the pandemic delivered a rare taste of life off the trading floor. Once desk-bound buyers and sellers had a bumper year, with their fixed-income, currencies, commodities and equities trading machines powering bank bottom lines. Many also had quality-of-life epiphanies working from home or vacation abodes, not commuting, and seeing their families.

That’s why some bank bosses are girding for a mini exodus when bonuses are paid. It’s a time-honored tradition for traders or investment bankers to move around Wall Street or the City of London when merit compensation arrives. But 2021’s game of musical chairs may play to a different tune. Instead of bolting for competitors, look for many financiers deciding to spend more time with their families, or to surf, climb mountains, or whatever.

It has been a good pandemic for finance. Trading revenue grew by nearly a quarter at Morgan Stanley in the first nine months of 2020. What Goldman Sachs calls market making surged by 63% to $12.8 billion, accounting for 43% of non-interest revenue. Barclays’ corporate and investment bank saw a 64% spike in income from fixed income trading, powering a 24% boom at the division Chief Executive Jes Staley has defended against skeptical shareholders.

Consequently, expectations for juicier bonuses are high. Using the accrued compensation and benefits for the nine months through September 2020 at Goldman and Morgan Stanley, bonuses could be 16% and 13% higher, respectively. Similar figures at Barclays and UBS suggest bumps of 5% and 12%. Even if the final numbers are lower after the fourth quarter, the statement of intent is positive.

Not all that money will flow to traders, naturally. Trading businesses got lucky as central banks pumped liquidity into markets, and governments did the same with fiscal stimulus, much of it financed by borrowing the banks underwrote. It could be argued that windfall profits should be distributed more widely.

But bonus disappointment could just reinforce a growing feeling that the daily grind is a distant nightmare, not a prescription for future happiness. Whether it’s life in the slower lane, the daily walk with the dog or coaching the kids’ soccer team, 2021 will be a good year to take the money and run.

First published December 2020

BY LAUREN SILVA LAUGHLIN

American company men may find a savior in China Inc. As corporations try to make their ranks more ethnically representative, many experienced – if white and older– males will find themselves without a job. Chinese companies, deterred from acquiring U.S. firms with valuable intellectual property, can recruit their discarded human capital instead.

Some of the largest U.S. companies are moving quickly to rebalance their headcount. At Apple, for example, women made up 38% of workers under 30 in 2018 versus just 31% four years earlier. The share of under-represented minorities in that group rose 10 percentage points to 35%. Meantime the employment-to-population ratio of white men fell from 76% in 1972 to 67% in 2018.

The coming year should be a banner one for diversity. California has rolled out quotas for boards; Nasdaq is considering requirements for listings. Companies from Wells Fargo to Google to Delta Air Lines have diversity hiring goals in place.

The goal is to reach new customers and positively transform corporate cultures. In the immediate term that may translate into net layoffs of older, more expensive, Caucasian men.

Some of those hitting the streets, resumé in hand, will have value for the right employer. Economic research firm Sonecon put the price of intellectual capital of U.S. companies at $9.2 trillion in 2011. Acquiring that by buying companies will be difficult under President-elect Joe Biden, who is expected to continue the crackdown on Chinese acquisitions. Poaching talent is easier and, in some cases, may be more efficient.

In the past some technology companies from the People’s Republic had reputations for poaching American experts, extracting trade secrets, then tossing them back. But those with expertise in artificial intelligence or international communications are keepers. And with Chinese retail traders starting to play U.S. stocks, American financial experience is becoming valuable too. Webull Financial, a Chinese-owned trading app that competes with Robinhood Markets, hired a white American dude as chief executive.

Chinese companies that have bounced back from the pandemic might even be able to offer more competitive pay packages. It may be a less direct way to get at American intellectual assets, but then companies are made by people, not patents.

First published December 2020

BY LISA JUCCA

The circular economy will take off in style. A propensity for thrift instilled by the pandemic hit and a growing desire to curb pollution will prompt shoppers to swoop on pre-owned high-end clothing and accessories. That’s a boon for resellers of high-quality old Gucci bags or Prada frocks that can last a generation or more. The luxury houses themselves could even get involved.

Old goods are the new new goods. Denim maker Levi Strauss in October launched a buyback platform. Weeks later furniture giant Ikea opened its first shop for repaired furniture, and Amazon.com has been offering refurbished electronics since 2015. The durability and charm of a Louis Vuitton Speedy bag, first launched in the 1930s, allow it to retain much of its monetary value as it gets handed along. Because of scarcity, Hermès International’s used leather items tend to cost 10% more than the retail price.

Before the pandemic, second-hand luxury goods sales were already growing three times faster than the primary market and were expected to double to 41 billion euros between 2018 and 2023, says UBS. But the potential stock of goods is much larger. About 60% of a woman’s wardrobe sits idle in her closet, says U.S. reseller ThredUp. Based on the $1.4 trillion of high-end shoes, bags and clothes sold over the past 10 years, according to Breakingviews calculations based on Bain & Co estimates, and applying a 30% discount to the original price, that’s around $600 billion of goods waiting to come back into circulation.

For online players like The RealReal and Vestiaire Collective, which sell fancy items from multiple brands, that means tapping into a potential revenue stream of $120 billion, when applying a typical 20% commission. Or higher, if the same item is repeatedly passed on.

Online marketplaces are already on the case. But reselling such items could also tempt plush players like Kering’s Gucci or Burberry, which have already conducted pilot projects. Margins would probably be lower than for their new products. After all, pre-loved apparel has to be vetted and, if necessary, buffed up.

Still, it’s worth it. Up until the pandemic struck, the fashion industry was responsible for 10% of annual global carbon emissions and was the second-largest consumer of water, according to the World Economic Forum. Given that poor record, investors and customers alike may develop a new regard for brands that choose to embrace the virtuous circle.

First published December 2020

BY CHRISTOPHER THOMPSON

In soccer, sudden death occurs when the result comes down to a single penalty kick. Europe’s professional clubs face a similar nail-biting outcome as mostly empty seats leave them facing financial relegation. To return to health, the beautiful game will have to import an idea from American sports.

Vacating stadia due to Covid-19 cost clubs in Europe’s top tier some 3.2 billion euros in collective revenue last season, according to the European Club Association. The loss of an estimated 15% of sales compared with pre-pandemic projections may seem modest compared to other poleaxed industries. But exorbitant player salaries, which already absorbed 60% of total revenue during the 2018-19 season, have pushed even rich clubs such as Manchester United and FC Barcelona into the red.

Even with a vaccine, fans are unlikely to refill arenas soon. The ECA, headed by Italian business magnate and Juventus Chair Andrea Agnelli, reckons grounds will be at just 20% of capacity from the beginning of 2021, resulting in a nasty 3.1 billion euro tackle to this season’s top line. As a result, stars like Paris Saint-Germain’s Brazilian forward Neymar could on average pocket an eye-watering 76 cents of every euro of revenue.

Putting a cap on player largesse would avoid such economic own goals. America’s basketball, ice hockey and football leagues all place a limit what their stars can earn. In the National Football League, players’ share of revenue stands at 48%.

Fitting a cap won’t be easy. American wages are dictated by collective agreements between heavily unionised players and a single national league. Any attempt at salary control would probably violate European labour laws, meaning the European Commission would have to intervene. Besides, spending limits which fail to address how TV money is divided could entrench national differences. In England’s Premier League, for example, a more equitable division of media income means champions Liverpool collect a smaller share of television cash than Real Madrid does in Spain.

Yet the prospect of mostly empty stadiums will push clubs deeper into financial extra time. To avoid future sudden-death outcomes, players will need to tighten their belts.

First published December 2020

BY JENNIFER HUGHES

Investment bankers will have a great chance in 2021 to apply their well-honed skills at talking up opportunities and downplaying league tables. The easiest money from selling Chinese shares in New York is destined to fade. And profitably pushing further onto the mainland will be hard work.

Goldman Sachs delighted in December at being the first to strike a deal to own 100% of its Chinese onshore operations. Others are also building on their 51% stakes just as many local companies seek fresh capital. More than 800 of them are queued up to go public, KPMG reports, while others are selling additional shares to beef up balance sheets. It can be no coincidence that Beijing has widened access just as it encourages greater use of markets and less dependence on bank loans.

The most lucrative work, however, is in New York, where fees average about 5% of the amount raised. Those opportunities are increasingly threatened by Washington’s hostility, including efforts to delist Chinese companies that don’t allow American regulators to scrutinise audits. The new geopolitical order has helped make Shanghai’s STAR board the fastest-growing equity market. Initial public offerings there, however, require sponsors to back their clients financially – an extra layer of risk that makes U.S. and European firms blanch.

Banks generated some $6.5 billion in 2020 by selling shares for Chinese companies like financial technology outfit Lufax, according to Refinitiv. Foreign ones collected roughly a third of the sum, Breakingviews estimates. Despite dominating in Manhattan and competing in Hong Kong, they only claim about 5% of the mainland China market. Morgan Stanley’s joint venture worked on the $7.7 billion Shanghai listing of chipmaker Semiconductor Manufacturing International, but that was only enough for the bank to take 13th place in preliminary year-end domestic equity rankings to lead its overseas peers.

One of the old big ideas about expanding into China was to use their international networks to help companies find acquisition targets abroad. Such work is becoming increasingly constrained because of protectionist governments. That means finding fresh ways to crack the market. For the time being, it will be a harder slog for less money as the China gravy train makes fewer stops on Wall Street.

First published December 2020