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The Capital of Capital
How long can New York reign?

By Susan Harrigan
Staff Writer

March 17, 2002

FOR 20 YEARS, Israeli drug company executive Eli Hurvitz has traveled almost every month to New York City. It's not for the food, though he always likes to try new Manhattan restaurants. It's not for the culture, though he and his wife will often go to the Metropolitan Opera or a Broadway show.

What Hurvitz really is after is what he calls "fuel” -- hundreds of millions of dollars to run his company, Teva Pharmaceutical Industries. Over the years, Hurvitz's pilgrimages to New York have helped Teva grow from a tiny company that used to import drugs on the backs of camels and donkeys to one of the world's largest generic drug makers.

Along with thousands of others from all over the world, the 68-year-old executive comes here to access the world's biggest pool of cash. For reasons stemming back to its founding nearly 400 years ago, New York City is the capital of global finance - the globe's biggest, busiest, money bazaar, three times the size of its nearest rival, London.

In a modern-day version of the ancient Silk Road between China and the West, thousands of businesses such as Teva trek the Money Road to New York every year seeking funding and advice. New York is "the corner that brings people together,” and has been for centuries, said U.S. Sen. Jon S. Corzine (D-NJ), a former top executive of investment bank Goldman Sachs.

In 1998, New York firms raised a total of $3.2 trillion for global businesses compared to about $0.9 trillion raised in London, according to a recent study by the Federal Reserve Bank of New York and the Corporation of London. That $3.2 trillion is more than the gross domestic product of every country in the world, except the U.S., China and Japan. It amounts to about $11.8 billion raised each working day. Divided up among New York City residents, it would come to $400,000 for every man, woman and child.

New York's role and status as the world's capital of money is one of the major engines driving the entire region. An army of 165,000 people involved in raising that $3.2 trillion is a crucial component of the city's economy, supporting many other New York industries, from retail to real estate.

Every day, the money bazaar draws workers from three states to the city's skyscraper office towers. The industry's tax dollars - nearly one-fifth of all city tax payments in a good year - help put cops on the streets, teachers in the classrooms and sanitation workers in neighborhoods.

The key players in the money-raising game, the investment bankers, draw lush salaries and bonuses, even in a down year. Their clients spend lavishly in New York, and they spend lavishly on their clients, sprinkling gold, and a certain panache, on some of the most opulent corners of the city and contributing to New York's allure to tourists. It's money that helps to put art on the walls of museums, fannies in the seats of the theaters, diners at $100-a-person prix fixe dinners, and buyers in penthouse apartments.

Blow to the Heart But in one horrifying moment on the morning of September 11, New York's unique role was put at risk. The terror attack on the World Trade Center struck at the heart of the world financial system. That heart began beating when trading was resumed a week later, but the physical, emotional and financial toll on the city has been immense.

In the six months since the World Trade Center attacks, New York City has lost more than 105,000 jobs - partly due to problems in the national economy, but also because of the World Trade Center attack. Partly because of Sept. 11, the New York City economy declined by 4.4 percent in the fourth quarter of last year, compared to 1.4 percent growth in the U.S. economy.

About nine percent of the city's office space is vacant, more than double the rate at the same time last year. Rents in the financial district have dropped amid concerns over air quality, disrupted commutes, and the trauma of working near a place where 3,000 people died. More than six months after the attack, parts of the district still resemble a war zone.

Due to the destruction downtown, an estimated 39,610 financial services jobs -- a category that includes banking, insurance, securities and real estate positions -- have left south Manhattan, according to TenantWise.com, a Manhattan-based real estate firm. Nearly 62 percent of those jobs moved to midtown Manhattan, while an estimated 26 percent relocated to New Jersey.

New York's giant diversified global money-raising firms - most of which had moved to midtown Manhattan prior to the attack - so far show no signs of moving their headquarters elsewhere. But the tragedy downtown made those institutions think - or accelerated their thinking - about further dispersing around the city, or moving some workers out of it completely. Recently, for instance, Morgan Stanley announced plans to develop a backup trading site in Westchester County, and Goldman Sachs said it would move its whole stock trading department to Jersey City. Until almost all of the firms in the financial district lost power and communications on Sept. 11, "none of us realized the risk of being so concentrated,” said David Komansky, chairman of Merrill Lynch, the nation's largest securities firm.

Winds of Change Even before the attack, challenges had emerged to New York's status as the world financial capital. As firms weigh the wisdom of staying in Manhattan, they have to consider the fact that technology has made physical location - in terms of clustering together - less than imperative. Computers and video-conferencing allow big complicated companies to function from dozens of sites around the world and still stay in constant communication.

"Technically, it's possible to do all this [investment banking] in hyperspace,” said Mike Wallace, a co-author of "Gotham,” a Pulitzer-prize-winning history of New York City. "My own take is that it won't happen, but a shock like this [Sept. 11] really raises the issue.”

And while many leading financial institutions continue to enjoy strong affiliations with New York, some top investment banks have been acquired by non-U.S. firms in recent years, and many others have substantial facilities overseas. The banks are "perfectly capable of picking up people and depositing them wherever they need to be,” said Raphael Soifer, a financial services industry consultant who recently watched a stone carver in London chisel Merrill Lynch's trademark symbol, a bull, into a new building there.

Then there is the looming challenge of the new, unified Europe. The European Union, composed of 15 European countries, recently took a step toward greater unification by adopting a single currency. Plus, Europe's stock markets have discussed affiliation, a step that Arthur Levitt, the former chairman of the Securities and Exchange Commission, said would threaten the U.S. status as the world's leader in raising money for companies.

Lower Manhattan doesn't need to be the center of the global financial services business, Bank of New York chairman Thomas Renyi said recently, but it's vital to "ensure that New York City at large” retains that title. "There are competitors,” he told a bankers' convention. "London in every manner is looking to unseat New York. We cannot allow Sept. 11 to give them the edge.”

New York would have been required to face these challenges even if the World Trade Center attack hadn't happened. And for the most part, analysts, observers, and industry insiders agree that the city is capable of meeting them. The attack, these experts say, hasn't removed three crucial advantages that have made New York the global financial center since the end of World War I - America is still the world's most stable financial and political system, its biggest economy, and its strongest military power.

Barring another catastrophic event - in which case all bets would be off -- retaining New York's status, they say, is mostly a matter of making sure the city remains the way it is; the classiest place to operate for investment bankers, who need a good environment for face-to-face negotiations with clients. That relatively tiny cadre of "Masters of the Universe” creates the stocks, bonds and other financial instruments that the rest of the industry trades, analyzes, sells, and administers, and as long as it is here, the workers doing those other functions will stay relatively close, experts on the securities industry say.

"If the quality of life in New York deteriorated, finance might leave, and if finance left, the quality of life in New York would deteriorate,” said Richard Sylla, a professor of financial history at New York University's Stern School of Business. "It's important to realize that.”

There will be changes in the financial sector of the next New York. The long-awaited new headquarters for the New York Stock Exchange likely will remain downtown, but will be less tall than originally planned. Many financial firms will accelerate their push to midtown, and thousands more of their backroom jobs may head out of the city permanently. Backup trading facilities to keep markets operating, even during the most testing times, may spring up in the outer boroughs of New York City, or beyond city limits. The transportation infrastructure will be revamped as a new balance is established downtown between residents and businesses. And there will be a new, more meticulous approach to security issues. The scars, physical and otherwise, will remain, but New York and its key financial sector will be reinvented -- again.

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