It isn’t often that the opening of a foreign bank’s US office is treated with a fanfare. But the dedication of the new US headquarters of Austria’s Creditanstalt-Bankverein last fall was just such an event. In chic new quarters overlooking Long Island Sound in Greenwich, Connecticut, state governor John Rowland addressed an overflowing crowd of clients, bankers and local TV reporters. “We look at this as a flagship,” said Rowland, referring to Creditanstalt’s move from New York City to Greenwich, just 45-minutes north by train. The Austrian bank’s relocation, he hopes, “will be the first of many other financial institutions”.
Creditanstalt, which is destined to become part of Bank Austria, may be the first foreign bank to headquarter itself in Greenwich but at least eight others now based in Manhattan, including banks from Belgium, Germany, Mexico and the Middle East, are quietly scooping out space in what has become one of the area’s most overheated commercial real estate markets. With 98% of the prime office space leased, Greenwich rents are now higher than those on Wall Street and almost equal to midtown Manhattan’s. Greenwich zoning laws restrict high-rise buildings, so it’s unlikely the town will be able to house major US financial institutions, or even the US offices of the largest European banks, such as SBC Warburg. Warburg is building a new office tower just a few miles north of Greenwich in Stamford, another part of the region’s new financial corridor.
The Swiss bank’s move, announced in 1994, helped break the psychological barrier to leaving Manhattan for many institutions. “There was a myth that you had to be in a certain place to be successful,” says Creditanstalt chairman Guido Schmidt-Chiari. When first approached by the New York executives on the idea of moving to Greenwich, Creditanstalt’s board balked. “Sitting in Vienna, the idea of moving from New York City to Greenwich seemed exotic.”
After obtaining approval from the Federal Reserve Board, Creditanstalt, which has $4 billion in assets, has moved its main branch with a staff of 110. “It’s easy for a wholesale bank,” says Schmidt-Chiari. “Basically it’s just a bunch of telephones and very skilled people. So you can pack up your operations and go.” The bank’s US treasury operations and corporate finance activities will be housed in Greenwich. About 10 people will remain in New York City, including traders in foreign exchange, money markets and those dealing with Creditanstalt’s eastern European business.
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Greenwich has a New England heritage of old money so the leafy suburb of 60,000 has long been one of the wealthiest in the US. It is home to many of Wall Street’s top executives, as well as to those in corporate America. But in recent years it has also developed a burgeoning financial community that has attracted younger people and newer money. Fashionable restaurants and shops now fill the downtown streets. Luxury retailer Saks Fifth Avenue has just opened on the site of a former dime store, Woolworth’s. Then there is the recent opening of a Hyatt Regency Hotel.
Among the Greenwich newcomers are an estimated 75 hedge funds, almost 200 financial advisers, a smattering of investment banking boutiques and a dozen US commercial banks that have established branches there specializing in private banking. Among the most prominent of the Greenwich hedge funds are Long Term Capital, the fixed-income arbitrage fund set up by legendary Salomon Brothers’ trader John Meriwether, and the operation of Paul Tudor Jones, who moved from New York City this year. US banks that have set up branches to cater to Greenwich’s wealthy include Chase Manhattan Bank and Fleet Financial, both of which established a toehold by buying local banks.
The largest financial player is Greenwich Capital, the 500-person fixed-income trading operation purchased this year by National Westminster Bank, which has been in the town for 15 years. AIG Trading, the trading subsidiary of the insurance giant which moved to Greenwich three years ago, and Weeden & Co, an institutional brokerage that moved there four years ago, are other sizeable institutions. Although Weeden was lured by tax breaks offered by the state, in the hot market of Greenwich today such incentives are seldom required. Even without any special breaks, taxes were a “significant component” of Creditanstalt’s decision to relocate, says Denis O’Dowd, Creditanstalt’s North American chief executive. He claims the move will cut the bank’s local taxes by 45%.
“A lot of the intellectual capital of New York is moving out of the city and into Greenwich,” says Steve McMenamin, director of equity research for brokerage Cantor Fitzgerald, who lives and works in Stamford. “Greenwich is no longer really a suburb,” he says, “it has become more of an international town.” He points out that the British ambassador to the UN lives on his street and that resources at the local library rival those of many investment firms. Not all of Greenwich’s new workers are quite so impressed, however many still live in New York City and “reverse commute”. A head of one hedge fund believes the town is still too “American” and “suburban” for those used to the diversity and cosmopolitanism of Manhattan.
Quality of life and lower taxes are the reasons financial firms give for setting up shop in Greenwich. Technology, globalization and an emphasis on trading make it possible. Those who trade from dawn to dusk have little need to see clients daily the main advantage of a Manhattan address. If anything the mystique, not to mention the privacy, of traders is only accentuated by the obscure location. Nevertheless, Manhattan is also conveniently close. “If you do want to have a face-to-face meeting with a client, it’s very easy to get to New York,” says John Moffy, the publisher and owner of Greenwich magazine.
Likewise, for those for whom seeing their clients mainly involves travelling in the US and internationally, a base in Manhattan is not a prerequisite. Creditanstalt, for example, says that only 6% of its US banking clients are located in the metropolitan New York region. Another newcomer to Greenwich, Spectrum Capital, the aircraft lease financing boutique owned by Mitsubishi Trust, has only 25% of its clients in Manhattan.
Smaller hedge fund operators say they benefit from the presence of the big guys. Daniel Gressel, the president of Telios Management, a global hedge fund, says: “We have no problems getting brokers to come visit us. Right around the corner is Long Term Capital and Paul Tudor Jones. So whenever people come up to Greenwich to see those guys, they stop by us too.”
For hedge funds, which pride themselves on exploiting the smallest spreads for the highest financial gain, the tax arbitrage of a Greenwich home is no doubt even more appealing than for other businesses. In New York City, these individuals would pay a myriad of taxes. In addition to state corporate taxes of 8%, they also pay a city corporate income tax of 8.85%, an individual tax of 4.5%, a tax on officers and directors, a rent tax. “And on and on and on,” says one hedge fund manager. Consequently a big hedge fund operator could easily save $2 million in tax liabilities by leaving New York City, claims one manager who moved his fund to Greenwich at the end of 1994 to avoid paying the local New York City taxes for that year.
Most of those who have moved to Connecticut say that, on an individual basis, they are too small for New York City to worry about. However, the exodus of financial institutions, particularly hedge funds, from Manhattan to Greenwich has already hurt the city’s finances. One hedge fund manager claims that last year’s drop in an item called “obscure business taxes” has reportedly caused New York City Mayor Rudolf Guiliani to rethink the city budget.
New York City is not, therefore, totally oblivious to the erosion of its tax base. Insurer AIG was able to get an incentive package worth $55.7 million to stay in New York City for the next 15 years and to add 1,800 new jobs while it retains the current level of 5,180 jobs. In comparison, AIG Trading’s Greenwich operation employs approximately 250 individuals.
Edward Deak, an economics professor at nearby Fairfield University, explains how the environment for business in Connecticut has improved since the 1990 recession, when the state’s economy was severely hurt by the decline of the defence and insurance industries. The state government commissioned a study to identify the kinds of business that would be attracted to Connecticut which, though less expensive than New York, was still a high-cost region. Given the nature of the labour pool, one of them was financial services.
Profit and pleasure
Then the state began offering tax incentives for companies to move, like the package of state and local tax breaks that convinced Swiss Bank to build a $145 million, 594,000 square foot office tower for its new north American headquarters. SBC Warburg, as the institution is now called, will move to Stamford next year, bringing some 1,500 to 2,000 employees to Connecticut. “We have tried to create a climate where profit is not a bad word,” governor Rowland told the crowd at the dedication for Creditanstalt. To prove it, Connecticut plans to cut the corporate tax rate from 11.5% to 7.5% over the next few years.
But lower costs is only one of the reasons for moving to Connecticut. Just as important is the “quality of life”. “Greenwich is an attractive area,” says Ron Lake, president of Lake Partners, a fund of funds headquartered there. “It’s much easier and more pleasant to get around in than Manhattan.” Lake, who invests family money in hedge funds, also notes: “I can visit more independent money managers in Greenwich than I can in all of London.”
Many of those who have moved their companies to Greenwich already lived there, making the corporate decision much easier. “We had a lot of young people who were recently married, and we wanted them to work in a financial environment without suffering the pains of daily commuting,” says Gary Davis, the president and CEO of AIG Trading, who lives in Greenwich and was a driving force behind the move. The area’s high quality of life, he says, translates into better available resources, including people. “There’s terrific access to a highly qualified and educated staff,” says Davis. AIG’s Greenwich trading room has just been enlarged to accommodate an expanded energy group, including trading in electricity.
Despite the move from the centre, metropolitan New York work habits live on in Greenwich. AIG Trading decided not to move its European headquarters out of London and into the nearby countryside because “the nature of the European market is conducive to midday luncheons and meetings,” says Davis. In Greenwich, however, as in Manhattan, traders are resigned to eating at their desks. Westport architect Roger Ferris, who has designed the offices for Creditanstalt, AIG Trading and Spectrum, notes that one of the requirements for refitting existing office space for AIG Trading was such amenities as reheat kitchens and exercise facilities. Even the distance to the bathrooms is critical, says Ferris. “They don’t want to have anyone off the desk for more than a few minutes.”
Ferris says that since premium office space in Greenwich is hard to come by, many institutions are making do with less room than before. “The average trading desk is no more than four feet wide so you can have a density of bodies in a small amount of space,” he explains. “Technology almost forces you into a higher body count per square foot. That’s why Greenwich has managed to accommodate a lot of these firms.” But oxygen has to be pumped in “to keep everyone lively”.
Greenwich has worked hard to meet finance house’s technological demands. Extra phone lines have been needed and high electricity demand means additional generators have had to brought in to ensure continuity of supply. Many trading firms also require “disaster recovery sites” fully equipped to trade in emergencies. But “you don’t want to do that in Greenwich at $37 to $40 per square foot,” says Ferris. Ironically, he says, more and more are looking to Manhattan for this. “They’re going back to Wall Street, where you can rent empty space for $10 to $15 per square foot.”
Ferris believes the biggest obstacle to Greenwich’s continued growth as a financial centre is the lack of available space. “It’s where everybody wants to be,” says Ferris. “But it won’t be long before there are no more opportunities to expand.” As a result, he is working on feasibility studies for the development of additional office space. But this would only increase it by 3% to 4% (approximately 280,000 square feet). Ferris says that eight other foreign banks have enquired about possible relocation to Greenwich, each requiring 20,000 to 50,000 square feet. For now, he says, “It’s all a space hunt”.
