History Is Against The City Of London & Will Judge It Harshly

Looking through news coverage relating to the City of London over the past few days we noticed a Reuters story about attempts to modernise Lloyd’s of London:

Modernising Lloyd’s of London will be a challenge, its chairman Bruce Carnegie-Brown said in New York late on Tuesday, as the 330-year old insurance market prepares to switch business to two automated exchanges.

The specialist Lloyd’s market insures everything from hurricane damage to soccer stars’ legs, but has been buffeted by two years of steep losses due to high levels of insured losses from natural catastrophes.

Its traditional way of doing business face-to-face in its City tower is expensive, as is its reliance on brokers and other middle men to offer its insurance across the globe.

It also faces increasing competition from other markets such as Singapore and Dubai.

Lloyd’s outlined plans last month to set up electronic platforms from as soon as next year.

But its intricate structure involving 99 underwriting syndicate members and hundreds of brokers makes change difficult.

“I do not underestimate the difficulty of this challenge because frankly, history is against us,” Carnegie-Brown told an industry dinner, adding that scepticism was “to be expected”.

“Lloyd’s has embarked on modernisation before and largely failed to deliver it. We’ve spent money, deployed new technology and hired talent for projects over many years but we have not done so well in bringing the market… behind our promise.”

Modernising Lloyd’s of London a challenge – chairman by Anon, Reuters, 19 June 2019.

History isn’t just against Lloyds but the entire anti-democratic set up in the City of London. The most obvious manifestation of this is the business vote system, which locks local residents out of having any real say over decisions made by their local authority. Likewise, the City of London uses money from its sovereign wealth fund City’s Cash to agitate for neo-liberal economic policies from governments and to defend tax havens and other means by which riches can be funnelled away from the many to the few. City’s Cash ought to belong to and be controlled by the people of London rather than the local financial industry, which uses it to benefit an already wealthy elite. It’s our money and the financial sector has effectively stolen it. However, the good news is every day is bringing more bad news for the City of London establishment. Take, for example, this from the Daily Telegraph:

The European Union’s threat to freeze out Swiss stock exchanges from the bloc’s single market will have confirmed the worst fears of the City of London about the future after Brexit.

Switzerland, which is not a member of the EU, has a system of regulatory recognition with Brussels called “equivalence”.

Simply put, the granting of equivalence to a non-EU country is a temporary recognition that its rules are as strict as Brussels and gives access to its markets.

Crucially equivalence lies entirely in the gift of the European Commission, the EU’s civil service, and can be withdrawn at short notice with no right of appeal.

British and EU negotiators have agreed that the same system will be used after Brexit…

The City will shudder at Brussels’ strong-arm tactics with Switzerland by James Crisp, Daily Telegraph, 19 June 2019.

Further, the assets the City of London has stolen from its residents are largely tied to land in and around the English capital and it looks that these might be about to massively depreciate in value as international property investors give up on this local market:

Some of London’s biggest office deals have been left in limbo after the latest wave of Asian money into the British capital suddenly dried up.

South Korean investors plowed 3.2 billion pounds ($4.1 billion) into the city’s commercial property market in the year through January, a record for the nation. The sudden withdrawal of support back in South Korea by investors, who were expected to buy stakes in the London properties, has threatened deals and stuck some Korean firms with properties they can’t offload.

More than a dozen asset managers, investors and brokers described in interviews the retreat of South Korean investors from London real estate deals and the impact on the market. They all asked not to be identified discussing confidential transactions. Units of Hana Financial Group Inc. and Mirae Asset Daewoo Co., Korea’s biggest brokerage by assets, are among buyers of properties they’ve struggled to sell on, they said.

Reluctance to sink more money into London offices isn’t unique to South Korea. Hong Kong investors that dominated deals in 2017 have slowed down purchases, while Chinese buyers, who were once the biggest investors before that, have also withdrawn from the market after the imposition of capital controls. News reports describing political turmoil in Britain in the face of its withdrawal from the European Union have been a major factor, according to Faisal Durrani, an associate at broker Knight Frank…

The reluctance of South Korean investors to buy into London property deals has coincided with increasing currency-hedging costs that are cutting into potential returns. Investors from the Asian nation typically seek a return of about 7%, the people said. Broker Knight Frank estimates yields on the most sought-after City of London offices are about 4.5% and the securities firms need to borrow about 60% of their value to reach the targeted returns.

That exposes them to hedging costs, which have moved against Korean investors over the past year, as the pound gained about 4.2% against the won. Instead, South Korean investors are moving their focus to other parts of Europe, where political stability and lower hedging costs make deals more attractive..

London is facing an uncertain future. Valuers at Knight Frank have now downgraded prices for the best City of London offices by a quarter of a percentage point, the first such negative shift since before the Brexit referendum in 2016. What’s different here is that the valuers didn’t base their calculations on transactions, but on weak sentiment, they said, because there weren’t enough deals to analyze.

Of the deals that did go through, there’s little evidence of a wave of new capital to replace Korean money. Citigroup Inc. purchased the Canary Wharf tower it had previously rented and two existing investors acquired parts of the Battersea power station project. Those two transactions accounted for more than 60 percent of the total invested in the first three months of the year, and while it only represents a single quarter there’s little indication the current period will see an increase in activity…

“In the absence of Korean and Hong Kong investors who made up the last two big waves of capital into London, who is going to pick up deals at current prices?,’’ Stephen Down, head of central London investment at broker Savills Plc said. “We don’t know yet because it hasn’t been tested.’’

London Office Deals Left Hanging in Wake of Abrupt Korean Exit. Commercial real estate deals teeter as Asian money dries up amid Brexit worries by Jack Sidders, Bloomberg, 17 June 2019.

Of course it isn’t just office property prices that are dropping, residential investment developments such as Taylor Wimpey’s ghost home complex The Denizen on the edge of the City of London also looks like it could be in trouble with its marketing efforts in Hong Kong failing to drum up sales.

The City of London has been playing a confidence trick on people in the UK and across the world for years with its claims of generating wealth for everyone when it actually impoverishes most of us. Should the City’s financial power dry up it will no longer be able to keep up the charade of pretending to benefit anyone beyond a tiny rich elite, nor fund its glossy and expensive PR campaigns on behalf of the wealthy few. It’s high time the City of London as we know it became history and this local authority was replaced with democratic institutions. Right now everything is coming together very nicely to make such change not just possible but likely.

Notes.

Modernising Lloyd’s of London a challenge – chairman by Anon: https://uk.finance.yahoo.com/news/modernising-lloyds-london-challenge-chairman-091119655.html

The City will shudder at Brussels’ strong-arm tactics with Switzerland by James Crisp: https://www.telegraph.co.uk/business/2019/06/19/city-will-shudder-brussels-strong-arm-tactics-switzerland/

London Office Deals Left Hanging in Wake of Abrupt Korean Exit. Commercial real estate deals teeter as Asian money dries up amid Brexit worries by Jack Sidders: https://www.bloomberg.com/news/articles/2019-06-17/london-in-limbo

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