Financial & Business Services ? USA Sector Report Financial & Business Services USA Produced by: Kelly Harlick, Vice Consul, Financial & Business Services, UKTI, New York, NY Justin Canetti, Business Development Associate, UKTI, New York, NY Last revised August, 2009 Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK Trade & Investment nor its parent Departments (the Department for Business, Innovation and Skills and the Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned. Published August 2009 by UK Trade & Investment. Crown Copyright © www.uktradeinvest.gov.uk Financial & Business Services ? USA Table of Contents OVERVIEW 3  CHARACTERISTICS OF MARKET   OPPORTUNITIES 13  KEY METHODS OF DOING BUSINESS 17  MORE DETAILED SECTOR REPORTS 17  PUBLICATIONS 17  EVENTS 18  CONTACTS 19  www.uktradeinvest.gov.uk Page 2 of 20 Financial & Business Services ? USA OVERVIEW Well on its way to recovering from the worst global recession since World War II, the United States continues to prove itself as a global leader for financial and business services. By the end of July 2009, the leading U.S. stock indexes including the Dow Jones industrial average, the NASDAQ, and the S&P 500 had posted immense gains, with all three indexes up 40% from the 1 lows that were hit earlier in the year . The former U.S. Secretary of Treasury, Ben Bernanke, 2 has also recently stated that he believes ?the worst is over.? These signs, all of which point to the end of the recession, may lead to a slew of new opportunities as investors begin taking their money off of the sidelines and putting it into play. Although the real gross domestic product (GDP) of the United States did continue to decrease over the second quarter of 2009 by 1.0 percent, this does show a vast improvement over the previous quarter?s loss of 6.4 percent. Causes for the continued decrease in GDP include negative contributions in residential as well as non-residential fixed investment, private 3 inventory investment, and consumer spending which fell by 1.2 percent. The loss, however, did beat Wall Street analysts? estimates and is yet another indicator towards the growth that is to come. One analyst at Barclays Capital estimates that the US economy will grow at an annual 4 rate of 2.5 percent for the third quarter and 3.0 percent in the fourth quarter of 2009. The US is the UK's largest single overseas market and even though there are similarities in language and history, many companies, irrespective of size, struggle to take advantage of the opportunities presented by the US. One of UKTI?s roles is to assist UK companies with their plans to invest and expand in the US. With our knowledge of the different markets within the US, we help UK companies identify and present their product or service to a new range of clients with the aim of bringing them successful, quantitative results. CHARACTERISTICS OF MARKET Regulatory Environment In the United States, Regulators generally have three objectives: (1) ensuring that institutions do not take on excessive risk; (2) making sure that institutions conduct themselves in ways that limit opportunities for fraud and abuse and provide consumers and investors with accurate information and other protections that may not be provided by the market; and (3) promoting financial stability by limiting the opportunities for problems to spread from one institution to another. Generally, banking and securities activities are regulated at both the state and federal levels, while futures are regulated primarily at the federal level and insurance at the state level. For banking activities, the Federal Reserve System (Federal Reserve)?including the Board of Governors and the 12 Federal Reserve Banks?the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) are the primary federal regulators. For securities activities, the Securities and Exchange Commission (SEC) is the primary federal regulator, and for futures products, the Commodity Futures Trading Commission (CFTC) is the primary regulator. In addition, self-regulatory organisations under SEC or CFTC jurisdiction provide oversight of securities and futures dealers and exchanges. State regulators also provide 1 San Francisco Chronicle; www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/08/04/MNT8193C1E.DTL 2 Bloomberg; www.bloomberg.com/apps/news?pid=20601087&sid=ai1PUDORj5Vk 3 US Department of Commerce, Bureau of Economic Analysis 4 Wall Street Journal; http://online.wsj.com/article/SB124904159680096697.html www.uktradeinvest.gov.uk Page 3 of 20 Financial & Business Services ? USA oversight of banking, securities, and insurance. For commercial and savings banks with state bank charters, state banking departments charter the entity and have supervisory responsibilities, while the Federal Reserve or FDIC serve as the primary federal supervisor for these banks. Some firms engaged in the provision of banking, insurance, securities, or futures products and activities in the United States are also required by statute to be regulated at the holding company level. These include bank holding and financial holding companies that are regulated by the Federal Reserve, and thrift holding companies that are regulated by OTS. In addition, the SEC has statutory authority to oversee investment bank holding companies, if they choose to be overseen in that way. Also, activities in the European Union?a treaty-based organisation of European countries in which those countries cede some of their sovereignty so that decisions on specific matters of joint interest can be made democratically at the European level?often impact U.S. firms and regulators. Over the last few decades, the environment in which the financial services industry operates, and the industry itself, have undergone dramatic changes that include globalisation, consolidation within traditional sectors, conglomeration across sectors, and convergence of institutional roles and products. As a result of these changes, a relatively small number of very large, diversified financial companies now compete globally to meet a broad range of customer needs. Moreover, the complexity of these firms and the products and services they offer, and use, are changing the kinds and extent of risks in the financial services industry. With regard to some risk, such as credit risk, diversification across products, services, and markets might be expected to reduce the risk faced by an individual institution. However, it may not reduce the extent of risk in the system as a whole. This is what we saw happen during the current financial crisis. The increased sophistication and interconnections throughout the industry made it difficult to determine the location and extent of that risk. In addition, the difficulty of managing these large, complex, globally active firms exposed them to greater operational risk in that it is more difficult to impose adequate controls to prevent fraud. For some time, the United States has chosen not to change its regulatory structure substantially. However, with the onset of the financial crisis and lack of regulation being identified by many as one of the causes, the US is aiming to embark on an overhaul of its regulatory structure in an effort to stop reckless risk-taking, predatory lending and dangerous debt. The proposed plan calls for stricter requirements on large firms whose failure could threaten the economy and the creation of new government agencies to regulate banks and protect consumers and investors. To strengthen government oversight and regulation, a new Financial Services Oversight Council headed by the treasury secretary will identify potential threats to the economy. If the council finds that a company poses a risk, the Federal Reserve would then have the power to intervene. New authority for the Federal Reserve forms the centrepiece of the plan. Other reforms include the introduction of regulation for exotic derivatives such as credit default swaps. A new agency, called the National Bank Supervisor, would regulate thrift institutions and banks in the same manner. Over-the-counter derivatives, known for fueling risky mortgage lending, also would be held to new record-keeping and reporting requirements. To protect consumers and investors from financial abuse, a Consumer Financial Protection Agency would have power to implement new rules on credit cards, mortgages, and other consumer products. The agency would punish companies that violate these rules. It is expected the proposals will put hedge funds and private equity investors under less-rigorous requirements than banks and mortgage lenders. Apart from the Office of Thrift Supervision, all other bodies remain. The plan needs Congressional approval but is landmark development indicating that financial regulation will be significantly changed moving forward. www.uktradeinvest.gov.uk Page 4 of 20 Financial & Business Services ? USA Industry Analysis Banking Sector The US Banking sector was hit hard by the recent economic recession. The US saw 68 banks 5 fail in 2009, and 93 fail since the start of the recession. Two of the largest investment banks, Lehman Brothers and Bear Stearns collapsed, and many others either merged or were bailed out by the federal government. Today, the remaining banks are beginning to recover and many are showing growth for the second quarter of 2009. Goldman Sachs reported record 6 profits for the second quarter with $3.44 billion, and JPMorgan announced strong returns as 7 well with $2.7 billion in profits for the second quarter of 2009. The Federal Deposit Insurance Corporation (FDIC) has been a big player recently. Since its 8 inception, no depositor has lost a single cent of insured funds as a result of failure. With 93 failed banks in the past couple of years, this is a true testament to the success of the organisation. The FDIC works to maintain the financial health of their insured banks by requiring a certain level of liquidity and reserve requirements. Banks that do not follow these requirements receive a warning and later can be declared insolvent at which time the FDIC takes over the management of the bank. FDIC-insured banking institutions reported a net income of $7.6 billion in the first quarter of 9 2009, which was an 11.7 billion decline from the first quarter of 2008. As reported earlier, the US Securities and Exchange Commission (SEC) is the US government?s regulatory organisation in place to protect investors and maintain a fair, orderly and efficient market. The SEC regulates share trading, banks and other financial markets and applies a rules-based approach to regulation. New changes in SEC regulations and rules are being considered after the recent failure of many banks, as well as the inability to pick up on Bernie Madoff?s billion dollar Ponzi scheme that went unnoticed for a number of years. Insurance Sector US Insurance companies are regulated by the state in which they operate in. State regulators, together with the National Association of Insurance Commissioners (NAIC) work together in making sure that the interests of insurance consumers are all being met. The landscape of the US health insurance industry may be in for a change as President Obama pushes for health care reform. As the number of Americans without health insurance continues to rise, this has become domestic priority number one for Obama. Nearly 46 million Americans 10 or 18% of the population under 65 were without health insurance in 2007. Obama?s plan, albeit expensive, proposes to lower costs, improve care, and expand coverage to the millions that are currently uninsured. It is unknown how this will affect the many privately held health insurance companies in the nation. 5 FDIC; www.fdic.gov 6 Washington Post; www.washingtonpost.com/wp- dyn/content/article/2009/08/14/AR2009071400818.html 7 New York Times; www.nytimes.com/2009/07/17/business/global/17bank.html 8 FDIC; www.fdic.gov/about/learn/symbol/index.html 9 FDIC; www.fdic.gov/bank/analystical/quarterly 10 National Coalition on Health Care; www.nchc.org/facts/coverage.shtml www.uktradeinvest.gov.uk Page 5 of 20 Financial & Business Services ? USA Wealth/Asset Management The wealth and asset management industry in the US is comprised of institutional advisors, banks, as well as hedge funds. Most major US banks have wealth management divisions that are able to advise their clients on a number of investment issues. Specialised asset management firms are located across the country to manage their clients? money and to help their clients reach certain financial goals. These goals most often include retirement planning, college funds, and trust management. Some of the largest asset management firms include Alliance Bernstein, Fidelity Investments, JPMorgan Chase, Legg Mason, and BlackRock. While many of these firms are headquartered in New York, most have branch offices located across the country. The alternative to these larger financial institutions are hedge funds. Hedge funds manage their investor?s money through a number of investment vehicles that are often not available at larger institutional firms. This can range from trading stocks to investing in antiques or fine art. Hedge funds cater only towards high net worth individuals and institutional investors as their 11 investors are required to be accredited. Although hedge funds do need to register with the SEC, they have been only lightly regulated up to this point. However, after the recent downturn in the economy, many people, including Treasury Secretary Tim Geithner, are calling 12 for stricter supervision. It is uncertain what regulatory changes will be made and how these changes will affect the hedge fund industry. Many hedge funds choose to hold offices both in the US and the UK. This is done in order to have the ability to trade in both markets and it is also done to be closer to their foreign investors. With investors putting millions of dollars into hedge funds, they often want to meet with the fund managers and having a local office provides them with this ability. Islamic Finance Islamic finance in the US remains a small, but growing industry sector. With nearly seven 13 million Muslims living in the main urban centres all across the country, they create a formidable market for Islamic finance. There currently are only a few national companies that have the ability to serve the market with the correct supervision of Shariah advisors and that have partnerships with regulators and major financial institutions. On the investment side, there are a growing number of Shariah compliant mutual funds as a result of the 1999 introduction of the Dow Jones Islamic Market Indexes (DJIM), which are 14 benchmarks to represent Islamic-compliant portfolios. The DJIM has an independent Shariah Supervisory Board and screens companies for Shariah compliance. In 2006, a US$165.7 million Sukuk issue was launched for East Cameron Gas. It was the first ever Shariah compliant gas 15 backed securitisation, and the first-ever Islamic securitisation rated by Standard & Poor?s. The main players in Islamic Finance are currently Guidance Residential, which has closed over 11 An accredited investor is an investor that meets certain guidelines set out by the SEC; www.sec.gov/answers/accred.htm 12 USA Today; www.usatoday.com/money/companies/regulation/2009-03-26-hedge-funds-regulationt- geithner_N.htm 13 DinarStandard; www.dinarstandard.com/finance/IF_NorthAmerica112107.htm 14 http://www.djindexes.com/mdsidx/?event=showIslamic 15 http://www.worldservicesgroup.com/publications.asp?action=article&artid=2153 www.uktradeinvest.gov.uk Page 6 of 20 Financial & Business Services ? USA $1 billion in Shariah compliant home financing since 2002, and Amana Mutual Funds whose 16 funds grew to over $1 billion in November 2007. US Regulatory authorities have generally been accommodating in their acceptance of Islamic Finance products despite some issues still unresolved on the status of deposits. Abdi Shayesteh, a lawyer with King & Spalding notes, ?The reality is that the US government has been receptive to Islamic banking and finance activities and has been involved in approving 17 Shariah compliant products since 1985.? Public-Private Partnerships Unlike in the UK, where the more centralised governmental structure has allowed the PFI/PPP market to achieve critical mass quickly, the US market is significantly more complex with its Federal Government, 50 States and multiple sub-state jurisdictions. This, combined with the different approach to funding infrastructure (usually through a mix of federal and bond market funding), and the highly politicised environment that surrounds infrastructure development, has retarded the development of the market in the US. Indeed, the US PPP market has had a tough couple of years, with a number of high profile deals that have failed. For example, the $12bn Pennsylvania Turnpike toll road deal fell over last year under the weight of political pressure ? this was all despite strong support from the Democratic Governor, Rendell. More recently, in the wake of the global economic meltdown, the Chicago Skyway toll bridge deal fell through because the required funding could not be raised. Despite the above, the industry remains up-beat about the future for PPP in the US. There are currently at least 25 states with PPP legislation which enable the use of various PPP approaches in the transportation sector. The states in the lead are Arizona, California, Florida, Pennsylvania, Indiana and Texas, with Chicago and Indianapolis mentioned as key cities. Other states such as Michigan and New York are catching up. Carbon Finance The work of policy makers to introduce the cap-and-trade system will prove to be a turning point for the carbon finance industry in the US. Even prior to the official introduction of this market, the companies that will have to deal with the with the issues of purchasing and selling carbon credits will certainly be in need of specialists to consult them on risk management, and project advisory. Additionally, a market will likely develop for secondary products for financial institutions, compliance buyers and governments. This US Carbon Finance market has many potential opportunities looming in the near future. The Obama-Waxman-Markey cap-and-trade bill has 18 already passed the House and is now pending in the Senate. It is only a matter of time until the bill passes and the opportunities associated with it present themselves. 16 DinarStandard; www.dinarstandard.com/finance/IF_NorthAmerica112107.htm 17 New Horizon October-December 2007 18 SF Examiner; www.sfexaminer.com www.uktradeinvest.gov.uk Page 7 of 20 Financial & Business Services ? USA Business Services The Business Services industry in the US includes financial/management consulting firms, human resource & staff consulting firms, accounting companies, as well as law firms. The top consulting and law firms generally have offices located nationwide, and most have an international presence as well. There are a diverse number of firms ranging from small regional companies, to large international firms. Consulting firms are not necessarily located in one primary region. Since the majority of their work is done at the client site, they usually have strategically placed offices in major cities 19 around the country. The top US consulting firms include: McKinsey & Co (New York); The Boston Consulting Group (Boston); Bain & Company (Chicago); Booz & Company (Mclean, VA); and the Monitor Group (Cambridge, MA). Many of the top law firms are located in the New York, Washington, D.C. and Chicago areas, but there are also a vast number of medium to large sized firms located in cities all across the 20 country. The largest law firms in the US include: Baker & McKenzie (Chicago); Jones, Day, Reavis & Pogue (Chicago); Skadden, Arps, Slate Meagher & Flom (Washington); Latham & Watkins (New York); and Morgan, Lewis & Bockius (New York). There are several major accounting firms in the US, many of which have either an international presence or at least an international affiliation. The ?Big Four? accounting firms are generally considered the largest and most prestigious accounting firms in the country. The Big Four include KPMG, PricewaterhouseCoopers, Deloitte & Touche, and Ernst & Young. Regional Analysis Boston Consular District The Boston Consular District covers all of New England including Eastern Connecticut, Rhode Island, Massachusetts, Vermont, New Hampshire, and Maine. New England?s financial services industry contributed $84.0 billion to the region?s GSP in 2008, or 11.0 percent of the region?s economic output making the industry the second largest sector by share of GSP in the region. The financial services industry paid its 463,000 full and part time employees in the region approximately $53.7 billion in 2007. This was 11.9 percent of total compensation paid in all industries in the region. Insurance carriers and related activities accounted for nearly 200,000 of the total positions in the industry, followed by securities, commodities and investments at 163,000, and the third largest area was credit intermediation at about 142,000. Census data suggests that average annual income stands at around $75,000 per employee in the region. Massachusetts in particular is most active in asset management (portfolio management, investment advice, securities brokerage), asset servicing (trust, fiduciary, custody, other), insurance (insurance brokers, P&C carriers, life insurance carriers), and private equity. Companies are able to draw from an extremely rich pool of highly educated workers with a history of innovation and a concentration of leading financial services companies. The area benefits from its history in financial services and from the world-class financial brands that continue to call Massachusetts home. Massachusetts holds 15% of the global mutual fund asset management market and ranks third in the US in terms of assets managed, trailing NY and California. In asset management and asset servicing Massachusetts is top 5 nationally in both employment and output. Massachusetts is dominant in ?manufacturing? (research and portfolio management) in addition to having a strong presence in operations (trade 19 Vault; www.vault.com 20 Consultwebs; www.consultwebs.com/largest_law_firms.htm www.uktradeinvest.gov.uk Page 8 of 20 Financial & Business Services ? USA management, custody, fund accounting and processing) and ?sales support? functions. nd Massachusetts also ranks 2 for venture capital, after California with over 250 venture capital rd and private equity firms with offices in Massachusetts and Boston ranks 3 in per-capita private equity spending. Many large U.S. institutions have divisional HQ?s in the area. Bank of America and Wachovia have their institutional asset management business headquartered in Boston (Columbia and Evergreen respectively). Bank of New York agreed to keep three divisions based in the area after the recent Mellon merger. Many more have their private wealth business based in Boston leveraging the areas wealth accumulation and rich talent base. While Boston remains a favoured location for many front office jobs, Rhode Island and New Hampshire have been creating low-cost, low-tax attractive environments for middle and back- office functions. Chicago Consular District The Chicago consular district covers the Midwestern United States, which is a geographic area larger than the whole of Western Europe. The region accounts for 22 percent of US GDP, and is made up of the following fourteen states: Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin. The Midwest is home to the headquarters of 149 of the Fortune 500 companies, including many leading financial services businesses. The region represents a broad base of economic activity and most financial service sub-sectors are well represented. Chicago is the United States second largest financial and business services centre and the eighth largest financial services market in the world. The Chicago Mercantile Exchange is the worlds? largest derivatives exchange. Des Moines, Iowa, has the second largest concentration of captive insurers in the United States. Leading financial services companies headquartered in Chicago and the Midwest include AON, Northern Trust, Edward Jones, AG Edwards, Fifth Third Bank, and Allstate. In addition, many British financial giants have invested here. Chicago is the North American headquarters of Aviva and HSBC. Houston Consular District The Houston Consular District covers Texas, Arkansas, Colorado, Louisiana, Oklahoma and New Mexico. As the energy capital of the US, Houston?s financial services industry is strongly influenced by the needs of the energy sector. As a result, most of the world?s major investment banks have an office in Houston where mergers and acquisitions activity in the North American oil & gas industry takes place. Additionally, Texas-based boutique investment banks also service the energy industry, including Tudor, Pickering, Holt & Co. and Simmons & Company International. Dallas and Houston are home to large private equity firms, including Texas Pacific Group, as well as energy hedge funds, and over-the-counter derivatives trading firms. Dallas also has a strong presence in asset management and features some of the largest financial institutions in the state including Fortune 500 companies such as Comerica and 21 AmeriCredit. However, the majority of Texas? 327 state-chartered banks , which hold $164.7 billion in assets, are mostly small regional banks. 21 Condition of the Texas State Banking System: A Report to the Finance Commission of Texas, March 31, 2009. www.uktradeinvest.gov.uk Page 9 of 20 Financial & Business Services ? USA Texas also boasts an active venture capital and angel investor community with longstanding firms such as Austin Ventures and Sevin Rosen Funds, as well as smaller entities including Sante Ventures and DFJ Mercury. Texas is home to several of the US?s top law firms, including Baker Botts, Vinson & Elkins, Fulbright & Jaworski. British financial services companies in Texas include Royal Bank of Scotland and Barclays Capital. The Finance Commission of Texas is the regulatory agency that oversees banks, savings institutions, consumer credit grantors, and other regulated entities chartered or licensed under state law. Additionally, it is the oversight body for the Texas Department of Banking, Department of Savings and Mortgage Lending, and the Office of the Consumer Credit Commissioner. Important themes for the future include carbon finance, as Houston aims to become the Carbon Trading Capital of the US, as well as Legal Software and Islamic Finance, which have yet to see their full potential in the region. New York Consular District The New York Consular District covers four states including New York, Connecticut, New Jersey, and Pennsylvania. As the preeminent global financial centre in the US, many of the country?s leading investment banks, asset management companies, securities brokers and insurance firms continue to call this region home. In addition, many leading foreign finance and business services firms have their North American headquarters located in this region. New York sources a large volume of its business from its domestic market and dominates in sectors such as fund management, hedge fund assets, private equity and securitisation. The largest and most active equities markets are located in NYC, including the New York Stock Exchange, The NASDAQ Stock Market, The New York Board of Trade and NYMEX. In recent years Connecticut has grown as a hotspot for finance along with New York, as many top hedge funds have settled down in towns like Greenwich, Stamford and Westport, including 22 four out of the five largest hedge funds in the world. Additionally, nine of the top twenty 23 largest law firms in the nation are headquartered in either New York or Philadelphia. Financial Services leaders headquartered in New York include Citigroup, Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of NY Mellon, American Express, MetLife, Marsh & McLennan, Blackrock, KPMG, Ernst & Young and Deloitte & Touche. UK companies that have a very large presence in the region include HSBC, Barclays, RBS, Standard Chartered and Willis Group. The Greater Philadelphia Region?s (GPR?s) Financial Activities sector is one of largest and most diversified among all major U.S metropolitan statistical areas (MSAs). In 2008 there were a total of 234,400 persons employed in the Financial Activities sector in the Philadelphia and Trenton MSAs, the fifth highest total among all US MSAs. Between 1990 and 2008 employment in the region?s Financial Activities grew steadily at 0.6% annually, adding 23,600 jobs. Most of the largest financial firms in the US have a presence in the Philadelphia region and four firms in the Financial Activities sector ? Cigna, Lincoln Financial, PHH, and Radian - are listed on the Fortune 1000 list for 2009 and have their headquarters in the GPR. Other leading financial activity companies such as Vanguard and SEI are also headquartered in the region. 22 Foreign Policy; www.foreignpolicy.com/story/cms.php?story_id=3967 23 Internet Legal Research Group; www.ilrg.com/nlj250/attorneys/desc/1 www.uktradeinvest.gov.uk Page 10 of 20 Financial & Business Services ? USA One strong asset that New York and Philadelphia based companies continue to have is the access to some of the smartest and most talented individuals in the country. This region is filled with some of the most prestigious Business and Law schools in the nation including New York University, Columbia, Cornell, Yale, Princeton, and the University of Pennsylvania. The recruits from these schools continually bring fresh ideas and motivation to the firms that hire them. The financial services cluster employs over 500,000 workers in NY State, with over 60% concentrated in Manhattan. Industry sectors that have yet to see their full potential in the New York Consular District include Islamic Financing, Carbon Financing, Public-Private Partnerships, and Legal Services. These industries are poised to expand and grow in the coming years and are discussed in further detail in the ?Opportunities? section of this report. Los Angeles Consular District The Los Angeles Consular District includes Southern California, Utah, Nevada (Clark County), Hawaii and Arizona. It also covers the State of Washington with regards to the Financial and Professional Business Services sector. Los Angeles is the second largest city in the United States, with a population of 4 million. Los Angeles County is by far the largest in the country at 9.8 million people. According to the latest population estimates from the Census Bureau, LA County would be the 8th largest state in the Union. There are 88 cities that comprise Los Angeles County. The banking and finance industry in Los Angeles is one of the largest in the United States. More than 100 foreign and countless domestic banks operate branches in Los Angeles, along with many financial law firms and 24 investment banks. UKTI has strongly promoted PPP and AIM in the Greater Los Angeles area. Fortune 500 companies Headquartered in Los Angeles that fall within the FS & Business Services sector include First American Corporation, CB Richard Ellis Group, Pacific Life, and Mercury General. UAFS (Utah Association of Financial Services) organisations, which include industrial banks, savings banks, and non-depository finance companies have grown to more than $241 billion dollars in assets and is one of Utah?s largest business sectors. Utah has strong local and nationally chartered banks with the experience to work with all the financial needs of business in Utah Arizona is geographically the sixth largest state in the Union with an area of 113,956 square miles (approximately the size of Italy). PPP and promotion of the AIM market have been the areas in which UKTI has focused on in the Financial Services arena. Business services and back-office operations are an important part of the Arizona economy. Washington State is in the Pacific Northwest region of the United States. Nearly sixty percent of Washington's residents live in the Seattle metropolitan area, the center of transportation, business, and industry, and home to an internationally known arts community. Once home to one of the nation?s largest banks (Washington Mutual), Washington continues to be a thriving centre for Financial & Professional Business services. 24 www.city-data.com/us-cities/The-West/Los-Angeles-Economy.com www.uktradeinvest.gov.uk Page 11 of 20 Financial & Business Services ? USA Miami Consular District UK Trade & Investment Miami covers Florida, Georgia, Tennessee, Puerto Rico and the US Virgin Islands. Most of the financial service activity in the region is concentrated in Miami, Florida and Atlanta, Georgia. Florida is home to nearly 123,000 financial and related professional service establishments that employ approximately 900,000 people. Resulting from Miami?s ?gateway? connection with Latin America and the Caribbean, the city is second only to New York City as a U.S. centre for 25 international banking , with much of the activity revolving around the financing of trade through Florida. The area also has a developing wealth management competency. Over 70 foreign and domestic banks have offices in Florida, including six of the ten largest in the world. UK financial companies with a presence in the state include Lloyds TSB, HSBC and Barclays Capital. Fortune 1000 financial companies headquartered in Florida include Fidelity National Financial, International Assets Holding, and Raymond James Financial. Additionally, Miami is home to a growing number of international law firms such as Greenberg Traurig LLP and Diaz Reus & Targ, LLC. Atlanta has the nation?s third largest concentration of Fortune 500 companies and the world?s 26 busiest airport . The city has a sizeable financial services sector with more than ten international banks in the area. Atlanta is home to a branch of the Federal Reserve Bank, covering Alabama, Florida and Georgia as well as parts of Tennessee, Louisiana and southern Mississippi. Fortune 1000 financial companies headquartered in the state include SunTrust Banks, Synovus Financial Corporation and Equifax. Additionally, Atlanta is home to a large number of international law firms. Carbon finance and public-private partnerships are among the industry sectors poised to expand dramatically in the coming years. San Francisco Consular District The San Francisco Consular District includes Northern California, Northern Nevada, Oregon, Washington, Idaho, Wyoming and Alaska. However, the financial services sector in the state of Washington is covered by the UK Trade & Investment in Los Angeles. Within the remit of UK Trade & Investment in San Francisco, the San Francisco Bay Area is the leading financial centre. The Bay Area is a $200 billion annual economy ranking 21st in the world. The Bay Area is the fifth largest metro area in the country, with a population of over 6.7 million, three metropolitan centres?San Francisco, San Jose and Oakland?and nine counties, each with its own distinct economic strength. The highest number of professionals and graduate degrees are awarded in the Bay Area, and the region hosts some of the US?s top universities including Stanford and University of California, Berkeley. 12 percent of the region?s employees belong to publicly traded companies that have grown at least 20% for each of the last four years, starting with at 27 least US$ 1 million in sales. Twenty-six Fortune 500 companies are headquartered in California, which ranks second only to New York. The San Francisco Bay Area financial services sector is concentrated in venture capital and private equity ---in fact, it has the highest density of venture capital firms in the world. The leading venture capital firms based in the Bay Area include Kleiner Perkins Caulfield & Byers, Sequoia Capital, New Enterprise Associates and Draper Fisher Jurvetson. In 2008, the Bay 25 Source: Enterprise Florida (www.eflorida.com) 26 Source: Metro Atlanta Chamber of Commerce (www.metroatlantachamber.com) 27 1000 Ventures; http://www.1000ventures.com/business_guide/sustainable_growth_rapid.html www.uktradeinvest.gov.uk Page 12 of 20 Financial & Business Services ? USA Area saw the most venture capital deals compared to all other U.S. cities, with $11 billion in 28 investments and 1, 207 deals closed. Fortune 500 financial services companies headquartered in San Francisco Bay Area include Wells Fargo, Visa, Franklin Resources and Charles Schwab. The region also has numerous smaller regional and boutique banks such as Silicon Valley Bank and Fremont Bank. The United Kingdom is represented in the area by financial and business services companies including Barclays, UBS, HSBC and Osborne Clarke. The San Francisco Bay Area is a vibrant, entrepreneurial place which supports innovation across all sectors, including financial services. Washington, DC Embassy District The Washington DC Consular District includes Delaware, Maryland, Virginia, West Virginia as well as North and South Carolina. The largest employer in the Washington, DC area is of course the federal government. However there are also many other large employers in the region. Law and Lobby firms are high on the list of affluent businesses in the DC area with over 800 law practices covering Litigation, Business & Corporate Law, Intellectual Property, Criminal Law and more. Within this Consular Region, 44 companies are listed on Fortune 500, with North Carolina hosting the most Financial Services companies such as Bank of America, BB&T and Wachovia. UKTI Washington began covering North Carolina as part of its consular region in May 2008. Delaware has partnered with many innovative and dynamic financial companies around the globe, thereby establishing the State as the place for international financial institutions looking to enter U.S. markets. Delaware?s pro-business legal and regulatory environment, strategic positioning, and landmark legislation, such as the Financial Centre Development Act, have paved the way for the financial services industry to become a key component of Delaware?s economic strength and growth. This cluster is comprised of a large, interconnected community of credit card banks, commercial banks, non-banking financial entities, investment advisors, insurance companies, trust entities, and service providers. In all, this cluster represents more than 1,000 employers and nearly 40,000 employees in Delaware. OPPORTUNITIES There are many opportunities still to be found in nearly every financial and business service industry, but the following sectors have only recently emerged as major markets in the US and may be set up to see a more pronounced period of growth in the coming years: Islamic Financing Although Islamic Financing has had a presence in the US for several years, many US banks are only now fully realising the potential that this industry holds. Devon Bank, a bank that seven years ago knew nothing about interest-free loans and Shariah compliant mortgages, now 29 accounts Islamic Financing to over 75% of their loan portfolio. 28 Money Tree Report; https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=search 29 www.usatoday.com/money/industries/banking/2008-03-26-islamic-finance-sharia_N.htm www.uktradeinvest.gov.uk Page 13 of 20 Financial & Business Services ? USA This industry has truly picked up speed as more Pakistani and Middle-Eastern immigrants enter the US. Pair that with the recent return to a stricter interpretation of the Quran for many Muslims, and suddenly we find a huge demographic of people in the US that are seeking out banks that will offer Shariah compliant loans. This spark has encouraged banking giants such as Citigroup, HSBC, and Deutsche Bank among others to have affiliates that are devoted to Islamic Finance. Moody?s Investors Service has also found that the global Islamic finance market is growing about 15-20% each year and was 30 worth around $700 billion with the potential to be worth $4 trillion. The recent economic recession is another factor that has further increased interest in Islamic Finance with many Islamic economists stating that the crisis could have been avoided had everyone followed the principles of Islamic finance. One reason is because Islamic finance doesn?t allow mortgage-backed securities or credit-default swaps, and the other is because in Islamic finance, banks do not charge interest. Differing from the traditional model of borrowers and lenders, Islamic finance uses a system based on buyers and sellers which levels the balance between the two sides. Most of the Islamic Finance retail activity takes place in urban areas with a large Muslim population such as Chicago, Northern Virginia, Michigan, St. Paul/Minneapolis, Southern California and New York. The size of the total Muslim population in the United States is 31 estimated at 6 to 7 million according to the 2000 Mosque Study Project and there are a number of community-based banks offering Shariah compliant products. However, although there is some local community interest around Islamic finance in the US, it still lags drastically behind Europe and the UK. Experts say that there are still some regulatory and legal changes needed for Islamic finance to truly catch up in the US, but the potential for this industry to grow remains. The UK?s objective in Islamic Finance is to communicate the attractiveness of the UK in this sector. A number of challenges remain to the development of Islamic Finance in the US; these are: ? Finding trained personnel; ? The availability of adequate technology; it is relatively difficult to get customised software since the market is so small; ? Some observers believe that many institutions sell Shariah compliant products that do not meet the adequate standards of Islamic law. Islamic Finance is used as a marketing tool; ? New products have to be cleared in every state before they can be marketed. Carbon Finance Carbon Financing, already a major trading scheme in Europe, is predicted to take off in the US 32 in the near future. With the introduction of the Regional Greenhouse Gas Initiative , as well as the support of the Obama administration, it is only a matter of time before the US adopts and implements a cap-and-trade program. This system, similar to the Emissions Trading Scheme set up in the EU, calls for the federal government to allocate permits indicating the amount of 30 http://edition.cnn.com/2009/BUSINESS/08/25/islamic.finance.index.html 31 http://www.cair.com/Portals/0/pdf/The_Mosque_in_America_A_National_Portrait.pdf 32 The Regional Greenhouse Gas Initiative (RGGI) is a mandatory, market-based effort in the US to reduce greenhouse gas emissions. Ten North-eastern and Mid-Atlantic states will cap and reduce CO 2 emissions from the power sector 10% by 2018. www.uktradeinvest.gov.uk Page 14 of 20 Financial & Business Services ? USA carbon dioxide and other greenhouse gases that a company can emit. A company can than trade or sell their unused emissions to other firms that have emitted more than their permitted level. Currently, the Waxman-Markey energy/climate bill is the predominating force that is taking this movement forwards. This bill, although the source of a great deal of criticism, has been pushing for the cap-and-trade system to be passed by the Senate. Already having passed through the US House of Representatives in June of 2009, it has been slow moving forwards. Some critics do not believe the bill will do enough to reduce carbon emissions and will cost US taxpayers money. One major critic of the bill, Washington State Senator Maria Cantwell, who is also the Chair of the Energy Subcommittee of the Senate Energy and Natural Resources Committee, has already begun to suggest alternative plans. One alternative system she is rumoured to propose in the near future is a ?cap and dividend? bill. Under this approach, carbon emissions would be capped, and permits would be auctioned off with 100% of the revenue returned to US citizens to offset increased energy prices. Although this alternative plan is still in the works, it does benefit the citizens over businesses which may give it the push it needs to move forwards. A recent report released by New Energy Finance predicts that if federal and state policymakers continue planning a cap-and-trade program in the US, then we could see a $1 trillion carbon emissions market by 2020. A market this size would be twice the size of the EU?s Emissions Trading Scheme. Furthermore, the analyst?s report estimates carbon prices to be as high as 33 $35-40 per ton as early as 2015. These high prices would be due to two factors. The first being the restrictions on the amount of greenhouses gases that can be emitted, and the second being a proposed ban on trading carbon credits internationally. The prohibition on trading internationally would be to prevent US companies from buying cheap credits from developing nations. The higher prices, which would cause energy and oil prices to increase, would then have a tertiary effect. It would result in major US investments in renewable energy. With higher energy prices, the need for a cheaper alternative would be imminent, and would cause the renewable energy industry to grow at a much more rapid pace. Public-Private Partnerships The global infrastructure market in the US is now showing concrete signs of developing into a significant opportunity for UK expertise. A combination of severe budget constraints, policy development, internal market pressure, increased understanding of the benefits of PPPs and recent lessons learnt (from unsuccessful approaches), all combine to push real interest in the UK?s long successful track record of PPP. The mechanism is designed not only as a means to bridge the investment gap, but also as a method to get public projects delivered on time to quality standards agreed at the outset and to a known budget. Due to these disciplines, the adoption of Private Finance Initiative leads to reform of public services delivery through service improvement and a commitment to transparency and best value for money. The PPP structure has been used extensively in the UK over the last twelve years with around 900 Public Finance Initiative and Public Private Partnership projects signed, involving finance of 34 around $100bn . A whole group of companies in the UK ranging from financial institutions to 33 New Energy Finance; www.newenergyfinance.com 34 Public Private Partnerships: UK Expertise in delivering value and service to the community. www.uktradeinvest.gov.uk Page 15 of 20 Financial & Business Services ? USA business services companies have expertise in PPP and could benefit from Government efforts to promote the structure. From its wide international experience, the UK can provide tailor-made solutions to suit the needs of widely varying economies across the world and specialised training courses for government officials who need to know how PPP really works. With UK based PPP experts? guidance, Singapore, Greece, Mexico, Brazil, to name a few, have adapted the UK?s model to create their own PPP markets. There are still several countries at the initial stages of PPP development: designing the policy and legislative framework that enable successful partnerships, getting the deals right, building the market place and so on. The UK is working with several of them including the USA. The key objectives in marketing PPP are to ensure that a UK-advised, UK-friendly PPP model and legal and institutional infrastructure are adopted. This makes it more likely that UK firms will win US projects in the future. Key reasons to be positive about the US market are: ? US infrastructure is in a generally poor state of repair - the American Society of Civil Engineers (ASCE) have estimated that some $2.2 trillion of investment in American infrastructure will be required over the next 5 years ? at current levels of budgetary spend, there will be a massive $1.1 trillion shortfall. The highly publicised failure of the Interstate 35 bridge in Minnesota was only one of 160,570 US bridges (out of a total of 35 590,750) that have been declared structurally deficient or functionally obsolete . ? There is reportedly around $180 billion of private sector funds which is waiting on the sidelines, but earmarked for infrastructure investment. ? Pension funds are increasingly viewing infrastructure as one of their core asset classes. ? The recent American Recovery and Reinvestment Act (aka Stimulus Package) has a strong focus on infrastructure. ? Only 27 cities have mass transit systems but 15 cities have plans for new systems to be 36 built by 2030 . In addition to the above, the US market is also beginning to broaden its outlook away from is current focus on PPP as a means to deliver transport infrastructure projects. Notable in this regard is the attempt by California to procure court houses through the P3 mechanism. Other key areas where the US is likely to focus resources and will consider PPP models include: mass transit, education and water. Legal Services There are plenty of opportunities in legal services because UK firms have the advantage of using Common Law which provides more certainty in areas such as dispute resolution and corporate liability. UK law firms also bring expertise in sectors where the UK is a world leader, such as Carbon Markets, PPP and Islamic Finance. Key messages: 35 Source: American Society of Structural Engineers. 36 Source: American Public Transportation Association. www.uktradeinvest.gov.uk Page 16 of 20 Financial & Business Services ? USA ? UK law provides more certainty in areas such as dispute resolution and corporate liability; and ? UK law firms have particular expertise in sectors such as Carbon Markets, PPP and Islamic Finance Mid range UK law firms rely on referrals for a large proportion of their US business. UKTI together with The Law Society can help them build a network of contacts with US law firms. These contacts need to be diverse as US law firms tend to be specialised by regions and by sectors. Priority regions for the promotion of UK legal services are those with the greatest trade in financial services, such as Los Angeles because of the concentration of high net worth individuals, Houston because of the large amount of Latin American business taking place in Texas, and Washington DC because of the presence of a number of high tech industries in North Carolina. Opportunities are in Chicago, Miami and New York. UKTI publishes international business opportunities gathered by our network of British Embassies, High Commissions and Consulates worldwide. These opportunities appear in the Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting up a profile you can be alerted by email when relevant new opportunities are published. New or updated alert profiles can be set in My Account on the website. KEY METHODS OF DOING BUSINESS ? Background information on doing business in USA can be found on UKTI?s website. Simply go to the USA country page where you will find a Doing Business in the USA guide MORE DETAILED SECTOR REPORTS Research is critical when considering new markets. UKTI provides market research services which can help UK companies doing business overseas including: ? Overseas Market Introduction Service (OMIS). Bespoke research into potential markets, and support during your visits overseas ? Export Marketing Research Scheme. In-depth and subsidised service administered by the British chambers of Commerce on behalf of UKTI Contact your local International Trade Advisor if you are interested in accessing these services or for general advice in developing your export strategy. PUBLICATIONS Wall Street Journal www.wsj.com Financial Times www.ft.com www.uktradeinvest.gov.uk Page 17 of 20 Financial & Business Services ? USA The Economist www.economist.com Forbes www.forbes.com Crain?s New York Business www.crainsnewyork.com EVENTS US Carbon Finance Forum The Metropolitan Club, New York, NY th 15-16 September 2009 http://www.uscarbonfinance.com Association for Financial Professionals Annual Conference San Francisco, CA th 4-7 October, 2009 www.afponline.org/pub/conf/annual_conference.html American Bankers Association Annual Convention Sheraton Chicago Hotel & Towers, Chicago, IL th 25-28 October, 2009 www.aba.com/Events/annual.htm Financial Times View from the Top, The Future of Capitalism Harvard Club, New York, NY th 28 October, 2009 www.ftconferences.com/viewfromthetopny/ American Accounting Association Northeast Regional Meeting Cambridge, MA th 5-7 November, 2009 http://aaahq.org/meetings/default.cfm Wall Street Journal?s CEO Council, Rebuilding Global Prosperity Four Seasons Hotel, Washington, D.C. th 16-17 November, 2009 http://ceocouncil.wsj.com UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses take part in overseas exhibitions. Attendance at TAP events offers significant benefits: ? possibilities for business opportunities both at the show and in the future ? a chance to assess new markets and develop useful contacts ? grants are available if you meet the criteria ? UKTI staff overseas will be available to assist delegates Details of TAP events can be found in the Events portlet on the USA page. Other Market Visit Support may be available via your local International Trade Advisor. www.uktradeinvest.gov.uk Page 18 of 20 Financial & Business Services ? USA CONTACTS American Accounting Association (AAA) www.aaahq.org American Bankers Association (ABA) www.aba.com American Bar Association (ABA) www.abanet.org American Finance Association (AFA) www.afajof.org American Insurance Association (AIA) www.aiadc.org Association for Financial Professionals (AFP) www.afponline.org Institute of Management Consultants USA (IMC) www.imcusa.org National Association of Investors Corp (NAIC) www.better-investing.org National Council for Public-Private Partnerships (NCPPP) www.ncppp.org U.S. Securities and Exchange Commission (SEC) www.sec.gov UKTI?s International Trade Advisers can provide you with essential and impartial advice on all aspects of international trade. Every UK region also has dedicated sector specialists who can provide advice tailored to your industry. You can trace your nearest advisor by entering your postcode into the Local Office Database on the homepage of our website. For new and inexperienced exporters, our Passport to Export process will take you through the mechanics of exporting. An International Trade Adviser will provide professional advice on a range of services, including financial subsidies, export documentation, contacts in overseas markets, overseas visits, translating marketing material, e-commerce, subsidised export training and market research. UKTI representatives with responsibility for the Financial and Business Services sector in the United States: Kelly Harlick, Sector Lead, Financial & Business Services UK Trade & Investment/British Consulate-General (New York, NY) T: 001 212 745 0411 E: Kelly.Harlick@fco.gov.uk W: www.uktradeinvest.gov.uk David Hughson, Trade & Investment Officer UK Trade & Investment/British Consulate-General (Boston, MA) T: 617-245-4508 E: David.Hughson@fco.gov.uk Andrew Bole, Trade & Investment Officer UK Trade & Investment/British Consulate-General (Chicago, IL) T: 312-970-3843 E: Andrew.Bole@fco.gov.uk Ann Lucas, Business Development Associate UK Trade & Investment/British Consulate-General (Houston, TX) www.uktradeinvest.gov.uk Page 19 of 20 Financial & Business Services ? USA T: 713-659-6270 ext 2137 E: Leah.Mayo@fco.gov.uk Darlene McGrath, Business Development Associate UK Trade & Investment/British Consulate-General (Los Angeles, CA) T: 310-996-3022 E: Darlene.McGrath@fco.gov.uk Santiago Foldvari, Trade & Investment Officer UK Trade & Investment/British Consulate-General (Miami, FL) T: 305-374-1522 ext 2326 E: Santiago.Foldvari@fco.gov.uk Laura Meadors, Trade & Investment Officer UK Trade & Investment/British Consulate-General (San Francisco, CA) T: 415-617-1343 E: laura.meadors@fco.gov.uk Elana Fiekowsky, Business Development Associate UK Trade & Investment/British Embassy (Washington D.C.) T: 202-588-6688 E: Elana.ffiekowsky@fco.gov.uk www.uktradeinvest.gov.uk Page 20 of 20