Financial and Insurance Services Climbing Higher
03 Aug, 2015
Caption: Omaha, Nebraska skyline. Photo: Ken Smith Photography
By Mark Kleszczewski
From rebound to expansion.
After years of stagnation, the financial services sector is seeing positive momentum. Increasing domestic and overseas demand, new investments and the rise of digital innovations are shaking up several industry subsectors as companies continue to adapt to the new, post-crisis environment.
With so many changes and regulations taking place, new strategies and effective management of assets are a must, notes Peter Riguardi, president, New York Tri-State region, JLL, a leading commercial real estate and investment management firm.
As industry firms focus on improvements and increasing their revenue, they are looking closely at their workforce, real estate and site selection decisions to rein in expenses in response to rising legal, compliance and security costs, he explains.
As a result, banks are reducing front office personnel such as research analysts, traders and investment bankers since federal guidelines on capital and risk make these divisions less profitable. However, hiring in back office roles has filled the gap as banks are increasing cybersecurity, legal and compliance headcounts. Though banking and finance employment remains 3.7 percent below its pre-recession peak, it’s growing at its strongest rate since 2006, up 1.9 percent year-over-year, report analysts at Riguardi’s firm.
“There’s a definite, strategic desire to be efficient as possible with office space and to try and evoke a collaborative workplace with more open floor plans, while using fewer square feet per person,” Riguardi adds. “Attractive, modern space is a key tool in the battle for retaining and recruiting top talent, especially millennials.”
Industry Brightens
According to JLL, many banks are reporting higher operating revenues and an uptick in loan demand. Community banks in particular have thrived recently, with earnings surging 28 percent in Q4 2014.
The return of market demand is translating into tangible building expansions and leases. Recent high-profile projects include: the Bank of China in New York City; eMonet Financial Advisors in Philadelphia; U.S. Bancorp in Minneapolis; LPL Financial in Charlotte; and KeyCorp in Cleveland. They’re joined by PNC Financial, which is investing $400 million and remaking the skyline of Pittsburgh with a 33-story, LEED-certified skyscraper complex, set to be home to 2,200 PNC employees this fall.
Also benefiting from this wave of renewed activity are communities like Jersey City, New Jersey, which offer the ability to relocate to a more cost-efficient location without sacrificing quality or access to mass transportation. Anchored by prominent firms such as Goldman Sachs, JPMorgan Chase, DTCC, and ICAP, developers and landlords on Jersey City’s waterfront are now investing millions toward upgrading facilities, enhancing amenities and making buildings more efficient.
“Some of the changes since 2007-’08 when the market collapsed have led to consolidation of some firms and the growth of smaller niche players, free-standing venture capital and private equity companies,” says Jennifer Morrill, press secretary, city of Jersey City, New Jersey.
Warren Buffett, the Oracle of Omaha. Photo courtesy of Greater Omaha Chamber
“Part of that is tied into our location and proximity to New York City, however, we have capitalized on that asset and implemented policies to further our growth and extend it to all areas of the city,” she says. “Companies like First Broker Securities, Start Management Investments, Circulum Vite, NY Life Insurance Co., Brown Brothers Harriman & Co., and First Data Corp. are just some of the financial and insurance firms that have located here in the last year alone.”
Additional example of new, sector-driven growth Morrill points to are JPMorgan Chase’s decision to relocate more than 2,600 employees and create 1,000 jobs as part of an expanded presence in Jersey City, as well as RBC Capital Markets’ local build-out, expected to bring 900 jobs to the area.
Such relocations and expansions are in line with the overall shift toward higher-density clusters that offer high-tech infrastructure and talent aligned with a global outlook, observes Mark M. Sweeney, senior principal, McCallum Sweeney Consulting.
“There is a trend in headquarters site selection for companies currently based in small- to mid-sized cities to move to larger metros with international hub airports,” he says. “Opportunities today can come from anywhere across the globe, so having the ability to recruit internationally yet retain talent locally is really important.”
As for back offices and the more process-oriented sections of financial departments, financial data processing used to be about handling a lot of paper at lower-cost fulfillment centers, but today, regions with a deep IT skills and the ability to handle shared service center work have an edge, Sweeney suggests.
One of the biggest clusters successfully fulfilling those kinds of needs is centered on Mississauga, Ontario, where finance, insurance and real estate companies employ more than 26,000 people. Integrated into the Greater Toronto area, the city is home to the Canadian operations centers or head offices of global leaders like American Express Co., Citibank, Bank of Tokyo, Habib Bank, HSBC and the Bank of China.
“The financial services sector and related industries certainly have benefited from the elimination of our federal and provincial capital taxes, but being connected globally and having the largest airport in Canada brings in a lot of companies,” says Susan Amring, director, economic development, city of Mississauga, Ontario. “It’s a great fit for our strengths which also include world-class telecom and road infrastructure.”
“All those well-known names make Mississauga the financial capital of Canada,” she says, “but our economic region is actually the third-largest financial services center in North America due to our data centers and back office presence for companies like RBC Financial, TD Canada Trust, the Bank of Montreal and others.”
Amring adds that another major draw is Mississauga’s ability to provide the financial and insurance industries with a highly-skilled and well-educated talent pool, thanks to the presence of 10 major universities and 11 technical colleges within commuting distance.
“Mississauga is fortunate to be a diverse community where 130 languages are spoken, making us a net importer of talent and labor into our city every day,” she says. “We also have a very strong information and communication technologies (ICT) sector which is closely aligned with the needs of financial services. With so much new digital technology coming out now, we hope to use that to grow that subsector here — so we’re pretty excited about the future.”
Banking Contributes to Detroit Revitalization
By Mark KleszczewskiWhether in the form of grants, volunteer time or increased spending, many organizations are interested in revitalizing downtown areas — and banks are no exception.
A prime example is in Detroit where Fifth Third Bank Eastern Michigan is relocating its regional headquarters from suburban Southfield, Michigan to downtown Detroit. The bank — which is investing tens of millions of dollars in Detroit’s revitalization — is the latest company to join the area’s business community in helping turn around Michigan’s largest urban center.
“Fifth Third Bank has long been a citizen of Detroit’s neighborhoods, having built numerous branches within city limits during the past decade,” said David Girodat, president and CEO, Fifth Third Bank Eastern Michigan, in a company statement. “Now that we’ve established a footprint in the city, we wanted to move our headquarters to be part of the downtown movement and contribute to the remarkable resurgence Detroit is experiencing.”
“Detroit continues to experience a wave of business confidence unlike anything we have seen in decades. Fifth Third Bank’s decision to move downtown is the most recent evidence that the greatest opportunities are in the Motor City,” added Mike Duggan, mayor, City of Detroit.
Other financial companies adding to the revitalization efforts and joining Fifth Third at its downtown destination — Detroit’s landmark One Woodward Avenue office tower — are national home lender Quicken Loans and venture capital firm Fontinalis Partners.
Fifth Third Bank will reposition employees in two phases, with the full relocation expected to be completed by summer 2016. In addition to direct employee spending, the move is part of an $85 million, five-year commitment to Detroit which will include charitable donations, small business lending, and CDC tax credit investments.
For more information, visit: www.53.com
“FinTech” Emerges
Although recently-launched technologies such as cardless ATMs and “robotic” financial advisers have yet to be fully embraced, the success of online loans and decentralized crowdfunding, along with the emergence of “FinTech” innovations such as Square and Apple Pay are changing consumer spending patterns and accelerating the industry in ways hardly imagined a decade ago.
View of Downton Mississauga, Ontario, with some financial businesses in the background. Photo courtesy of city of Mississauga
According to JLL, the number of FinTech companies has grown 26 percent year-over-year and global investment is on track to reach $8 billion by 2018. To encourage collaboration, global banks and financial service providers are supporting FinTech lab space with the hopes of tapping into mobile, cloud, analytic and cybersecurity innovations. While such new firms may start with one or two employees, many see their staffing and office space needs expanding quickly as their product or service scales up.
Silicon Valley and New York are among the most active FinTech markets, though others are catching up. One of the most solid, yet fastest-growing areas for such technology and financial services in general is right in the middle of the county, centered on Omaha, Nebraska.
“Warren Buffett certainly has given Omaha global recognition, but we’ve also got institutions such as Mutual of Omaha, TD Ameritrade, First National Bank, Fidelity Investments, Travelers Insurance, Pacific Life and many others anchoring the hub,” says Randy Thelen, senior vice president, economic development, Greater Omaha (Neb.) Economic Development Partnership. “A lot of that is tied to the high-level of security, telecom and internet connectivity built up from the long-time presence of U.S. Strategic Air Command, which is now undergoing a $1 billion expansion.”
“Strength in data processing and lower business costs allow us to support the transaction side of financial services at a very large scale. People may not realize it, but much of the country’s credit card and mobile payments actually run through Omaha,” Thelen says.
“Lately, we’re been seeing some of the folks within the larger, finance-related industry and a percolating entrepreneurial community branching out from that base of expertise into new areas of financial services,” Thelen adds. “For example, PayPal is growing its worldwide operations center in Omaha, and a lot of the technology behind Apply Pay was developed by First Data, which has a major facility here.”
Thanks to its unique combination of business climate, tax structure and universities that create a constant supply of financial analysts and actuaries, Omaha is also a major hub for insurance companies, Thelen says. Salaries range from 20 percent to 30 percent less than the coasts, and low premium and retaliatory taxes provide major cost advantages for more than 30 insurance companies domiciled in the Omaha region.
Moving Forward
As technology evolves and investments in the sector increase, landlords and developers are responding to favorable economic conditions by increasing commercial construction and new live-work-play communities. This will provide financial and insurance firms looking to relocate with more modern, efficient space options in the coming years.
“Interest rates going up or another slowdown of the economy itself will definitely impact construction starts for banking and financial services firms,” Riguardi cautions. “But the current low cost of capital and the strong desire to get better, more efficient space is leading to lots of new development projects, not just in New York, but in many other markets.”
“What’s also important is that there are a lot of smart people on all sides of the industry — including developers and tenants — who have learned their lesson. I think we’re going into a growth phase and the prospects will remain good,” he says.
For complete details on the organizations featured in this article, visit:
Greater Omaha (Neb.) Economic Development Partnership
