NEW YORK -- New York leaders are concerned that the city is losing its competitive edge in the financial services sector, which a report says is burdened by tough regulation and a legal environment that deter foreign investment, and because top employees are being lured elsewhere.
Billions of dollars and thousands of jobs are at stake, New York lawmakers said Monday -- unless something is done to help New York regain its footing as the financial leader of the world.
Mayor Michael Bloomberg and Sen. Charles Schumer appeared at City Hall to discuss their report that found the city is losing its competitive edge and could amount to little more than a bit player in a matter of years.
They said New York and other U.S. cities are falling behind in financial services while cities like London, Dubai, Hong Kong and Tokyo are surging ahead, scooping up talented employees and billions of dollars of market share in investment banking, sales and trading.
"Unless we take corrective steps, and soon, we're going to see America's leadership in global financial transactions dwindle, putting a chill on the nation's economy and the city's," Bloomberg said. "That will spell fewer jobs and slower overall growth."
One in nine New York jobs is in financial services, which contributes more than a third of business income tax revenues to New York's economy. Nationwide, financial services is the third-largest sector of the economy, contributing 8 percent of gross domestic product, behind only manufacturing and real estate.
"If New York does not stay No. 1 in terms of financial services, we could lose everything else," Schumer said.
Bloomberg and Schumer said the problems begin with America's burdensome regulatory atmosphere, which is scaring companies into taking their business overseas -- a concern that echoes other reports and analyses in recent months. There has been growing chatter about the declining number of international companies listing shares on U.S. stock exchanges, favoring other countries for regulatory and other reasons.
The pair was joined at a City Hall news conference by someone who might be seen as an unlikely supporter of their cause -- New York's new Democratic governor, Eliot Spitzer, who was himself associated with the tough regulatory environment because of his work as state attorney general. Spitzer's pursuit of mutual fund managers and investment firms forced reforms in the financial world, earning him international recognition and the nickname "the sheriff of Wall Street."
Spitzer said he endorses the report, which recommends relaxing elements of the Sarbanes-Oxley Act, the anti-fraud law enacted in 2002 amid a spate of corporate scandals.
"Sarbanes-Oxley was a reflexive response to a crisis," he said. "As with any piece of legislation that is passed so quickly, there are going to be some errors and some mistakes. Let's correct them, let's do what we have to do with our regulatory structure, preserving the integrity, preserving the openness and transparency that we need, while relieving some of those costs."
Already, the Securities and Exchange Commission last month agreed to ease some rules within Sarbanes-Oxley, and is in the midst of a public comment period about those revisions.
But the report from Bloomberg and Schumer suggested the SEC go further and consider exempting foreign companies from certain parts of the act, "provided they already comply with sophisticated, SEC-approved foreign regulators."
The report also said the United States loses out because legal environments in other nations "far more effectively discourage frivolous litigation," and urged the SEC to promote arbitration as a means of resolving securities-related disputes between investors and public companies.
Schumer, a Democrat, said the findings were sent to SEC Chairman Christopher Cox.
"We look forward to reviewing the report and its recommendations," SEC spokesman John Nester said.
Schumer once supported Sarbanes-Oxley. He even authored one of the more contentious parts of it. The Schumer-written Section 402 bars corporations from extending credit to their executives.
At the time, the provision was designed to prevent a company like WorldCom Inc. from lending hundreds of millions of dollars to its one-time CEO Bernie Ebbers, but critics say that part of the law is so broad it bans all sorts of routine, ethical business behavior.
The report, which was prepared by consulting firm McKinsey & Co., also warned that New York and cities nationwide are at a disadvantage when it comes to attracting and keeping the top echelon of the work force. Among other things, immigration and visa requirements have made it harder for companies to hire talented foreign workers, the report said.
Bloomberg, a Republican and former CEO, spent years on Wall Street and built his multibillion-dollar fortune from the financial information company Bloomberg LP, which he founded in the early 1980s.
In a way, he contributed directly to Wall Street's globalization because the computer terminal he created back then helped revolutionize the method and speed of communication in the financial world.
Long before there was widespread access to streams of market information, the Bloomberg terminal suddenly served up a wealth of data in new formats, as well as a method of computer messaging that predated the days of e-mail and Internet communication.
He noted on Monday that information technology has helped other cities gain on New York by "eliminating barriers to the flow of capital around the world," but said it is one inevitable factor that isn't likely to change.
To reach its findings, the McKinsey team interviewed more than 50 CEOs and business leaders, and gathered information through surveys of more than 300 other leaders and senior executives.