Top-tier investment banks Goldman Sachs, Morgan Stanley and JPMorgan were some of the first companies to order their workers back to the office. David Solomon, CEO of Goldman, famously called remote work an “aberration,” and Morgan Stanley chief executive James Gorman said, “If you can go to a restaurant in New York City, you can come into the office.” Free food and casual attire were some of the inducements to entice bankers back.
It seems that the tide is turning against the New York City-based banks. A survey, conducted by the Partnership for New York City, found that around 25% of financial services firms plan to “cut their workforce” over the next five years.
It’s not just the big banks. About 13% of Big Apple employers expect to reduce their workforces in coming years, and around 33% responded that their need for real estate and office space will decline.
The data indicates that the majority of workers don’t want to commute back to an office. About 10% are in the office four days per week, 12% are in three days, 8% return for two days, another 8% come in one day per week and a large 54% of Manhattan office workers are fully remote.
This may not bode well for bankers, brokers, traders, compliance, audit, risk, money managers and other professionals working in the securities industry. The study wasn’t too specific about the downsizings. It could be attributed to the expenses associated with their substantially underutilized office spaces, the ability to hire people remotely from anywhere in the world, the usage of artificial intelligence and technology instead of people and the effects of relocating jobs to other locations, in an effort to find cheaper labor compared to well-paid financial professionals who are based in New York.
The flight out of Manhattan has been going on for many years. It first started after Sept. 11 when business leaders recognized it wasn’t smart to have all of the banks clustered closely together on Wall Street.
The first move was to Midtown Manhattan and then opening up offices in Jersey City, New Jersey. When clients didn’t balk at the change in address, financial services firms expanded across the country, in an attempt to find lower real estate costs, less taxes and better weather than the brutally hot August summers and freezing-cold winters in New York. They also paid people in these locations less than New Yorkers.
Deutsche Bank, Credit Suisse, Goldman Sachs, Morgan Stanley, Barclays, UBS, Citigroup, Alliance Bernstein and an array of other financial institutions established and aggressively staffed hubs in Florida, North Carolina, Salt Lake City, Dallas, Nashville and other less expensive locations compared to New York. Investment and financial companies also started relocating jobs around the world.
The pandemic ushered in another exodus of firms leaving New York, which for a long time was the epicenter and hot spot of the outbreak. During the bleak days, Goldman Sachs considered moving its money management division to Florida.
The absence of a state income tax, plus warm weather and a business-friendly mindset, prompted hedge fund billionaires and native New Yorkers Paul Singer and Carl Icahn to relocate their respective businesses to Florida.
Leon Cooperman, the billionaire former hedge fund manager and CEO of Goldman Sachs Asset Management, previously moved to Florida. He said of his move, “I suspect Florida will soon rival New York as a finance hub,” due in part to the “Tax and Spend” policies of New York.
A number of bankers told their boss, Ken Moelis, the CEO of his eponymous investment bank Moelis, that they wanted to leave New York City for Florida. Virtu Financial, a highly successful electronic trading firm that made about “$9.6 million a day” during the third quarter of 2020 set up shop in Palm Beach Gardens, Florida.
Artificial intelligence, algorithms, electronic trading and automation has taken jobs away from thousands of traders. Investment banks seek people who have the math, technology, software, coding, data analytics and related skills, which can all be done remotely anywhere in the world.
If you look around any trading floor today, you’ll only hear a slight hum and see the flickering lights of the Bloomberg terminals and computer screens. Only a short while ago, you would have heard the vibrant, rambunctious atmosphere of sales and traders crying out to customers and counterparts.
When you see footage on cable news about the stock market, they’ll usually show a busy, open-outcry market on the floor of the New York Stock Exchange. It’s really a Potemkin village. The cameras shoot where there are some live traders and support staff herded into one small area. In reality, the New York Stock Exchange floor is devoid of humans and runs primarily on technology conducting the electronic trading activities.
Now that remote work has proven successful, it’s getting increasingly harder for businesses to demand their staff to go into an office five days a week. For those who are not familiar with New York City and its surrounding suburbs, commuting is a frustrating nightmare. It’s too long of a trek and very expensive. Taking a train, bus or driving from Long Island, New Jersey or Connecticut is a complete waste of time, energy and money—especially as we now have a remote option.
If people remain steadfast and require remote work, New York City could be in trouble.
Unless city and state-elected politicians enact changes, the flight out of high-taxed, expensive cities will continue. As corporations and well-paid, white-collar workers leave, the cities will bear the brunt of plummeting tax revenue. The decline will force mayors to drastically cut costs. This will include massive layoffs of teachers, police officers, firefighters, garbage collectors and other municipal workers.
With less services, the cities become dirtier, crime increases and living conditions worsen. This will prompt even more people to move. A cascading downward spiral could occur, making places, like New York, dangerous and inhospitable. It could become just like in the dark days of New York in the ‘70s. It took over a decade to turn things back around.
On a positive note, the office buildings can be retrofitted to become a mixed usage of residential, office space, retail stores and shops. This has already happened on Wall Street. Where there were once only banks and brokerage firms, now it’s post-college young adults, families and the stores, restaurants and shops that serve them.
Source: Forbes
