$51 trillion U.S. Financial Sector May Lose Its Global Leadership Position: McKinsey Report

The U.S. will lose its place as the world's leading financial center in the next decade without legal and regulatory changes, according to a McKinsey report, commissioned by New York Mayor Michael Bloomberg and Senator Charles Schumer found.

The report suggests exempting some non-U.S. companies from the Sarbanes-Oxley corporate-governance regulations.  If not, the report warns, it could lose 4 to 7 percent of the global financial services market over the next five years.

The findings are based on interviews with 50 chief executive officers and a survey of 305 other executives in the financial-services industry, conducted by McKinsey & Co.

Other Highlights and Stats:

Taking pre-emptive steps to address concerns about regulation and litigation might add $15 billion to $30 billion in revenue in 2011 alone. It would also allow for the creation of 30,000 to 60,000 jobs in the securities sector.

Foreign markets closing in on US: In 2005, American investment banking and sales and trading revenue totaled $109 billion ($69 billion in sales and trading and $40 billion in investment banking) compared with $98 billion in Europe and $37 billion in Asia.

The United States, the largest financial market in the world,  with “financial stock” — equities, private debt, government debt and bank deposits — of $51 trillion in 2005, but its pace of growth was significantly slower than in other markets, especially the Asia-Pacific and Britain.

Europe has a larger share of some of the more innovative areas of finance, including derivatives, the report concludes. 

Europe has a 56% share of the $52 billion global revenue pool from derivatives. 

From 2002 to 2005, London’s financial services work force grew by 4.3%, to 318,000, while New York City’s shrunk by 0.7%, or 2,000, to 328,400 jobs.

In 2002, London was home to only 3 of the largest 50 hedge funds, compared with 12 today, while New York's share has declined from 28 of top 50 in 2002 to 18 of the largest 50 hedge funds today. 

United States controlled 16% of the global stock-offering volume, exceeding $1 billion, in 2006 (through the beginning of November) compared with 57% in 2001. Europe’s share has leaped from 33% in 2001 to 63% through the beginning of November.

The U.S. accounted for 20% of all IPOs last year, down from 35% in 2001, according to the Financial Services Forum. 

Companies will spend $6 billion this year complying with the rules, according to a study by Boston-based AMR Research released in March.

The Business Roundtable, which represents executives from the U.S.'s biggest companies, says 40% of its members will spend more than $10 million each complying with Sarbanes- Oxley.

Sources and related commentary:

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