Post-Covid markets: more remote, digital and globalised?
The coronavirus crisis has reshaped urban living and working. It will also change the way financial firms operate over the longer term.
When you are living in the middle of crisis, it can be easy to make misguided predictions about what will happen next.
Look back to the financial crash, when — before the eurozone crisis — some Europeans spoke of specifically Anglo-Saxon capitalism facing a reckoning. In 2008, then German finance minister Peer Steinbrück said: “The US will lose its status as the superpower of the world financial system.”
A dozen years on, the most influential financial companies are still American, and when markets panicked recently, it was the dollar that everyone sought.
On the flipdside, there were plenty who foresaw the end of the EU when Greece and other countries needed bailouts — Grexit was almost as ubiquitous a term for a short while as its UK version turned out to be years later. But the bloc has held together, albeit less its arguably least enthusiastic member.
This coronavirus crisis is not financial in origin, but it is impossible to know yet how the industry will change in the long term as a result of responses like the gigantic central bank stimuli and the easing of bank regulations.
But a more tangible impact has been to location, with office addicts and air mile junkies confined to their homes. And it is remarkable how many people think the habits we have adopted in the last few months will endure.
Now that lockdowns are easing, albeit with no end yet to the health crisis, people are mulling over how they want to live and work once the world returns to normal, or whatever will pass for it. It turns out that in the last few months many have discovered they can work from home rather smoothly and do not want to rush back to the office five days a week, thank you very much. Meanwhile, the cultish belief that those who wish to work from home are somehow shirking or weak of character has been rightly obliterated.
“I’ve had a number of direct emails saying please don’t roll back your mindset on flexible working when the environment goes back to normal,” said Tom Naratil, president of UBS Americas, recently. “And we’re not.”
Face-to-face meetings will keep some of their appeal. Working from home is fine for current business, but less ideal for new business: bonding with new clients, pitching for new deals, and training and recruiting staff is less effective by video call.
Paco Ybarra, chief executive of Citi’s institutional clients group, translated it into investment banker jargon for the Financial Times: he said that banks were able to adapt well to remote working because they could draw down “capital that we have accumulated before” from face-to-face interactions.
“At some point, you would see depreciation of that capital and then you would start seeing problems.”
There are economies of scale both to being in the office and to working from home. Being in a mostly empty office confers few of the normal social benefits, so you will wonder why you are there; but being the only one working from home makes you feel like you are missing out and worse, that your colleagues are stealing an advantage with the boss.
This could mean that the future of work and networking will be one of bifurcation: lots of everyday stuff done at home, but there will be value in coming together at peak times, to be more productive, to show you care, or just to share in the experience.
In the short-term, offices need to be adapted for social distancing. In the longer term, companies may question how much real estate they need at all.
Some workers who have clustered in expensive cities will be considering moving further out, as commute times and fares become less of a burden and greenery, peace and quiet and perhaps a more permanent form of social distance take on fresh appeal. This option will look particularly attractive if the social and cultural benefits of cities — pubs, restaurants, theatres and so on — remain unavailable, or their value is diminished.
All these individual choices will together change financial hubs themselves. Some places may succeed: Michael Mainelli, one of the sheriffs of the City of London, told GlobalCapital that his stomping ground had the advantage of being “best in class.” If someone in finance can only make one business trip to Europe a year, it will quite likely be to London over anywhere else.
Cities centres may keep hold of people and companies by improving residents’ living conditions. Before the crisis, Paris mayor Anne Hidalgo proposed a "15 minute city" where residents can live and work without having to travel too far. Anyone who has laboured into central London by rail or tube would doubtless snatch at that with both hands.
But companies may shrink operations elsewhere. Cost control could encourage more outsourcing: if a lot of work will be carried out remotely anyway, why not employ people in a cheaper location?
This in turn could affect financial firms’ identities. During the crisis, governments have reasserted national borders and restrictions, both physically and economically. Governments and other state bodies have been the ones making the rules and keeping the economy running.
But if remote working, relocation and outsourcing do take off further, finance stands to become even more globalised and less rooted to traditional centres, at least operationally. This would counteract the slowdown or reversal of other forms of globalisation.
Over a long period, finance jobs have become more and more digitalised, and banks, investment companies and insurers have all had to adapt. It has taken them an age. There is a fintech industry because the big players in financial services have been riddled with years of expensive, clunking and barely compatible systems.
The next leap forward is set to be much more sudden.