LONDON — Coming out of Brexit this year, Britain’s government needed a new blueprint for the future of the nation’s financial services as cities like Amsterdam and Paris vied to become Europe’s next capital of investment and banking.
For some, the answer was Deliveroo, a London-based food delivery company with 100,000 riders on motor scooters and bicycles. Although it lost more than 226 million pounds (nearly $310 million) last year, Deliveroo offered the raw promise of many fast-growing tech start-ups — and it became a symbol of Britain’s new ambitions by deciding to go public and list its shares not in New York but on the London Stock Exchange.
Deliveroo is a “true British tech success story,” Rishi Sunak, Britain’s top finance official, said last month.
It was a false start. Deliveroo has since been called “the worst I.P.O. in London’s history.” On the first day of trading, March 31, the shares dropped 26 percent below the initial public offering price. (It has gotten worse.)
impacts from Brexit were immediate: On the first working day of 2021, trading in European shares shifted from venues in London to major cities in the bloc. Then London’s share of euro-denominated derivatives trading dropped sharply. There’s anxiety over what could go next.
Financial services are a vital component of Britain’s economy, making up 7 percent of gross domestic product — £132 billion in 2019, or some $170 billion. Exporting financial and other professional services is something Britain excels at. Membership in the European Union allowed London to serve as a financial base for the rest of the continent, and the City’s business ballooned. Four-tenths of financial services exports go to the European Union.
The government has begun hunting for ideas to bolster London’s reputation as a global finance center, in a series of reviews and consultations on a variety of issues, including I.P.O.s and trading regulations.
For many, the changes can’t come soon enough.
“The United Kingdom is not going to sit still and watch its financial services move across” to other European cities, said Alasdair Haynes, the founder of Aquis, a trading venue and stock exchange for equities in London. This will make the next three or four years exciting, he said.
But this optimism isn’t universal. The prospects of a warm and close relationship between Britain and the European Union have considerably dimmed. The two sides recently finished negotiations on a memorandum of understanding to establish a forum to discuss financial regulation, but the forum is voluntary, and the document has yet to be signed.
Duff & Phelps found that fewer see London as the world’s leading financial center but that it topped the leader board for regulatory environment.
Here are some of the plans.
Mr. Sunak told Parliament on March 3, the same day a review commissioned by the government recommended changes designed to encourage tech companies to go public in London. It proposed ideas, common in New York, that would let founders keep more control of their company after they began selling shares.
For example: allowing companies with two classes of shares and different voting rights (like Facebook) to list in the “premium” section of the London Stock Exchange, which could pave the way for them to be included in benchmark indexes. Or: allowing a company to go public while selling a smaller proportion of its shares than the current rules require.
Today in Business
The timing of Deliveroo’s I.P.O. wasn’t a coincidence. It listed with dual-class shares that give its co-founder William Shu more than half of the voting rights for three years — a structure set to “closely align” with the review’s recommendations, the company said.
But the idea may be a nonstarter among some of London’s institutional investors. Deliveroo flopped partly because they balked at the offer of shares with minimal voting rights.
the latest craze in financial markets, having taken off with investors and celebrities alike. SPACs are public shell companies that list on an exchange and then hunt for private companies to buy.
London has been left behind in the SPAC fervor. Last year, 248 SPACs listed in New York, and just four in London, according to data by Dealogic. In March, Cazoo, a British used car retailer, announced that it was going public via a SPAC in New York.
Already there are signs that Amsterdam could steal the lead in this booming business for Europe. There have been two SPACs each in London and Amsterdam this year, but the value of the listings in Amsterdam are five times that of London.
Britain’s financial regulatory agency said it would start consultations on SPACs soon and aim to have new rules in place by the summer.
regain ground lost to Germany, France and other European countries on the issuing of green bonds to finance projects to tackle climate change.
The City’s future
London’s finance industry isn’t in danger of imminent collapse, but because of Brexit a cornerstone of the British economy isn’t looking as formidable as it once did. And as London tries to keep up with New York, it is looking over its shoulders at the financial technology coming out of Asia.
The government has continuously billed Brexit as an opportunity to do more business with countries outside of the European Union. This will be essential as international companies begin to ask whether they want to base their European business in London or elsewhere.
When it comes to the future of Britain, it’s “almost a back-to-the-future approach of London as an international center as opposed to being an international and European center,” said Miles Celic, the chief executive of the CityUK, which represents the industry. “It’s doubling down on that international business.”
The Biden administration has unveiled its corporate tax overhaul, intended to raise $2.5 trillion over 15 years to pay for an infrastructure program. “Debate is welcome. Compromise is inevitable. Changes are certain,” President Biden said, but he stressed that “inaction is not an option.”
“America’s corporate tax system has long been broken,” the Treasury secretary Janet Yellen wrote in a Wall Street Journal op-ed coinciding with the plan’s release. In addition to raising the headline corporate tax rate, the administration’s proposal takes aim at companies that shift profits abroad, especially to low-tax havens like Bermuda or Ireland. Some of the changes could be enacted by regulation, but things like raising the corporate tax rate will need the approval of Congress.
What’s in the plan? Here are the main provisions:
Raise the corporate tax rate to 28 percent. The increase from 21 percent would put the U.S. more in line with other big countries and, the administration says, lift corporate tax receipts that have fallen to their lowest levels as a share of the economy since World War II.
global minimum tax rate by midyear, but previous efforts have faltered when it came to nailing down the details.
Punish companies that headquarter in low-tax countries. A provision in the plan would target “inversions,” where American companies merge with a foreign entity in order to move headquarters to a low-tax country.
Replace fossil-fuel tax subsidies with clean-energy incentives. Previous attempts to eliminate subsidies on oil and gas met with stiff industry and congressional opposition.
Beef up the I.R.S. The agency’s enforcement budget has fallen by 25 percent over the past decade, and the proposal would bolster the budget for experts in complex corporate litigation.
What effect would it have? A Wharton School budget model concluded that the corporate tax rate increase would “not meaningfully affect the normal return on investment,” but when combined with the proposed minimum tax on book income, business investment would fall somewhat. All told, by 2050 the tax provisions would reduce government debt by more than 11 percent from the current baseline, but also reduce G.D.P. by 0.5 percent over that period.
“I’m actually OK at 28 percent.”
“I think there could be bipartisan interest in about half of what the president proposed on the spending side, but of course the corporate tax increases would be a non-starter,” Rohit Kumar, the head of PwC’s Washington tax policy group and a former aide to Senator Mitch McConnell, told DealBook. He’s not convinced there’s even enough support among Democrats for tax increases.
For more on this, see our sister newsletter, The Morning: “Corporate Taxes Are Wealth Taxes”
HERE’S WHAT’S HAPPENING
The counting of votes in the Amazon union drive begins soon. The union seeking to represent workers at a warehouse in Alabama said that 3,215 ballots were cast, representing 55 percent of eligible workers. The hand count of the ballots will begin either later today or tomorrow.
Britain curbs the use of AstraZeneca’s vaccine for people under 30. The decision came as regulators increasingly suspect a link between the shot and rare blood clots. While Britain has enough vaccines from other makers to avoid a slowdown in its inoculation efforts, the concerns may dent vaccination efforts in developing countries.
Senator Mitch McConnell walks back his comments on companies and politics, sort of. The minority leader conceded that his criticism of companies for speaking out against voting restrictions was not spoken “artfully.” (Democrats noted that Republicans have benefited from corporate donations.) “They are certainly entitled to be involved in politics,” Mr. McConnell said.
Tencent’s biggest shareholder sells a slice of its holdings for $14.7 billion. Prosus, the Europe-based tech investor, sold 2 percent of its stake in the Chinese tech giant in the biggest-ever block trade (breaking its own record). Prosus still owns a 29 percent stake in the company.
hadn’t told top executives or his board of the arrangement. He is accused of having the gun-rights group file for Chapter 11 to stymie an investigation by New York State’s attorney general.
Acres of empty desks
Many parts of the economy have held up during the pandemic — but corporate real estate isn’t one of them. Landlords and cities are worried that remote working will irreversibly sap demand for office space, The Times’s Peter Eavis and Matthew Haag report.
The numbers are grim for landlords. The national office vacancy rate in city centers has hit 16.4 percent, according to Cushman & Wakefield, a decade-long high. In Manhattan alone, over 17 percent of all office space is available, the most in over 30 years. And rents on existing space could also face pressure from new buildings coming online, representing 124 million square feet.
Some are staying hopeful. Landlords like Boston Properties and SL Green haven’t suffered big financial losses from the pandemic, thanks to many tenants being locked into long leases. They’re also betting many companies want their workers to meet in person to better collaborate and train younger employees.
The final damage won’t be known for some time. Companies are still trying to figure out their real estate needs, based on their work policies: While Amazon expects a return to an “office-centric culture,” JPMorgan Chase’s Jamie Dimon said that the bank may need only 60 seats for every 100 employees after the pandemic.
“We are just going to be bleeding lower for the next three to four years to find out what the new level of tenant demand is,” Jonathan Litt, the chief investment officer of Land & Buildings, told The Times.
“Even though I’m sort of a pro-crypto, pro-Bitcoin maximalist person, I do wonder whether at this point Bitcoin should also be thought in part of as a Chinese financial weapon against the U.S.”
— Peter Thiel, the tech investor, on how cryptocurrency threatens the U.S. dollar. “China wants to do things to weaken it, so China’s long Bitcoin,” he added.
Florida and Texas banned them. Airlines, universities, event venues and other businesses are also testing various methods of vaccine verification. The starkly different approaches reflect a wider national and global debate on proof of health in the pandemic era.
“There are a lot of ways it could be done badly,” Jay Stanley of the American Civil Liberties Union told DealBook, but he suggested a “narrow path” to a certification system that could work. The ideal system would be paper-based with a digital supplement, Mr. Stanley argues, so that people who lack access to technology aren’t disadvantaged. Encrypted data would be stored on a decentralized network, protected with a public key for vaccine providers and private keys for users to ensure privacy. Fairness also demands a standardized approach, rather than the current variety of systems, which could result in “a mess for civil liberties, equity and privacy,” he said.
The Biden administration has said it won’t mandate vaccine passports, a point it reiterated this week, but it is working on standards the private sector can adopt. New York partnered with IBM on the state’s opt-in Excelsior Pass, which allows access to restricted activities and venues.
The certificates can raise a slew of social and legal issues, depending on who is asking for proof of vaccination and why, according to the Stanford law professor David Studdert. Government mandates trigger more concerns than opt-in programs, he noted, and companies will have different considerations if they seek certification from customers or workers. Given all the variations, he said, “within reason” the market should decide what works, and officials should avoid both mandates and bans: “Different communities and employers have a different tolerance for risk.”
More on vaccine passports:
THE SPEED READ
A top S.E.C. official warned of “significant and yet undiscovered issues” with SPACs, the latest words of caution from the regulator about blank-check funds. (WSJ)
Twitter is said to have held talks to buy Clubhouse for $4 billion, though negotiations aren’t currently active. (Bloomberg)
Shares in Deliveroo rose after retail investors were allowed to start trading in the food delivery service. (CNBC)
Politics and policy
China is offering tax breaks and other perks to financiers in Hong Kong to keep them from leaving the territory. (NYT)
A federal official warned last June that Emergent BioSolutions, the company behind the Johnson & Johnson vaccine mix-up, lacked trained staff and had problems with quality control. (NYT)
Uber and Lyft are “throwing money” at drivers to bring them back to work. (FT)
Within weeks, Apple will roll out new privacy notifications for apps, which companies like Facebook have argued would harm their businesses. (Reuters)
“No publicly traded company is a family. I fell for the fantasy that it could be.” (NYT Op-Ed)
Best of the rest
How the pandemic pummeled the world’s most famous shopping streets. (Quartz)
Former employees of Marcus, the consumer lender that is key to Goldman Sachs’s future, reportedly say they were burned out by an ambitious product launch schedule. (Insider)
All about muons, the subatomic particles that seem to disobey the known laws of physics. (NYT)
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