The Riverside South site in July 2010
In November 2008, JPM and Canary Wharf Group (CWG) announced that the 999 year leasehold interest in the Riverside South site had been sold to JPM for £237m, after UK property developer Hammerson and its partner, the Corporation of London stated that the bank had ended discussions for a new 90,000 m2 office on the site of St Alphage House in the City of London following a lengthy battle with residents from the neighbouring Barbican estate and it becoming clear that the banks ever expanding space requirements could not realistically be met within a heavily constrained site.
Hammerson's St Alphage House in the City of London
Since 2008 however, the global banking industry has changed beyond recognition and whilst JPM emerged from the credit crunch relatively unscathed, indeed snapping up rival US bank Bear Stearns along the way, the growing culture of “banker bashing” continues. After the collapse of Northern Rock and the bailout of Lloyds Banking Group and the Royal Bank of Scotland (RBS) in the UK, the government has been quick to respond with new legislation and taxes on bonuses, which is viewed by many within the square mile as being detrimental to London’s role as a leading global financial centre. JPM have recently gone as far as to state that they are considering London’s future role within the bank, which puts the proposed £1.5 billion Riverside South scheme in doubt.
JPM have singled out the proposed UK bank levy, which will come into force on 1 January 2011 as yet another tax that will have a negative impact upon its balance sheet. The government believe that the levy will generate around £2.5 billion of annual revenues, whilst in actual fact, it is likely to be the major UK banking groups such as Barclays and HSBC who will contribute the lion’s share of the projected revenue as the levy, which will initially be set at 0.04 per cent, rising to 0.07 in 2012 will apply to their global consolidated balance sheet, whilst for foreign banks including JPM it will apply only to their aggregated UK balance sheet. Any potential banking activity tax, which has also recently been mooted by the government, is likely to meet with further resistance from JPM.
The bank levy, which the government put out for consultation last week, is likely to have far more of an impact on European banks such as Deutsche Bank (DB) as it remains unclear whether they will be forced to pay the levy twice, both in Germany and in the UK. The bank, who has been linked to several high profile office developments in the City including both 20 Fenchurch Street http://www.leytonstonia.com/2010/06/deutsche-bank-lined-up-to-take-space-in.html and 100 Bishopsgate, maintains a significant presence across the square mile, with its 8,000 London staff generating around a third of global corporate and investment banking revenues.
The German bank took a €225 million hit on the recent 50% tax on UK bonuses over £25,000, and in a move not followed by major rivals chose to share the one off cost across its global operations. Whilst DB has remained quiet in response to the government’s recent proposals, Jamie Dimon, JPM Chairman and Chief Executive Officer has been particularly vocal on the issue with his opening statement in JPM’s first quarter results referencing the fact that “Our net income increased to $4.8 billion... partially offset by a charge of $550 million for the U.K. bonus tax.” Dimon, who reportedly met with Prime Minister, David Cameron to discuss such issues during his recent visit to the US is now reported to view Asia as the key growth market for JPM and is stalling on any firm commitment to London and any new European HQ at Riverside South.
The proposed Riverside South scheme in Canary Wharf
JPM’s Europe, Middle East and Africa (EMEA) investment banking division generated revenues of $9,790 billion in 2009, over a third of the total $28,109 and whilst JPM do not disclose how the EMEA total breaks down, it is likely that London will have been the main contributor, so whilst JPM may rightly see Asia as a growth area, as indeed do all of the major banking groups, to dismiss the importance of London’s role within the group is nonsense. The commitment from others banks including Japan’s Nomura, and the Australian bank, Macquarie who recently took 270,000 ft2 of space at Drapers Gardens in the City for their European headquarters shows London’s prominent role in global finance is not likely to be seized by the likes of Hong Kong or Singapore overnight.
Ultimately, there is a pressing need for JPM to consolidate its London offices, with the bank currently spread across several sites with leases that expire at differing times. JPM Asset Management is based at 20 Finsbury Street and JPMorgan Treasury Services at 60 Albert Embankment in London’s midtown, whilst the largest site is the 368,000 ft2 125 London Wall office. When JPM bought Bear Sterns it also took on the failed banks property liabilities. As a result, 262,000 ft2 of space, over ten floors at the 314,000 ft2 Five Churchill Place development in Canary Wharf is now let to JPM Markets for a term of 20 years from 11 August 2009 at an annual rent of £40.50 ft2 totalling £212 million, however this space could be sublet in the future should the bank proceed with its move to nearby Riverside South.
125 London Wall, JPM's current London HQ
JPM has around 5,000 investment bankers based in London and with the banks full takeover of Cazenove there is also a requirement for ever larger trading floors. Cazenove staff have recently been told that they would be transferring from their existing offices at 20 Moorgate to another JPM building, the 312,000 ft2 10 Aldermanbury in a move which has not been well received. One of the key benefits to JPM of the revised Riverside South scheme is that the trading floors span contiguously between the lower levels of the building and, if required, can extend to provide up to 95,000 ft2 of commercial space, which would become the largest dealing floors in London and unrivalled within the space constraints of the square mile. The question of whether banks will have to split their investment banking and commercial divisions in the future however will likely prove a critical factor in JPM deciding whether it now needs such a requirement.
JPM Asset Management, 25 Finsbury Street
The US bank is advised by property consultant Gerald Eves LLP and one alternative that JPM is said to have considered is the option to take the one million ft2 of available space at 25 Bank Street, the former offices of Lehman Brothers, which are currently occupied by the Japanese bank Nomura until September 2010, when they will consolidate their 4,000 London based staff to a new 525,000 ft2 headquarters building at Watermark Place in the City. As attractive as the space at 25 Bank Street may be however, the likelihood of one of the world’s most successful banking groups taking over the former European headquarters of a now defunct rival is minimal at best. The other possibility of remaining in the City and downsizing the 1.9 million ft2 space requirement is a more viable option.
If construction of Riverside South is postponed, or put off altogether CWG will be paid for completed works and also retain £76 million, which represents a portion of the developer’s profits. This has been commonly dismissed as being a pitiful amount for a bank the size of JPM, however the design, piling and raft construction costs are now likely to be considerable and a total outlay of well over £100 million is an expensive one for the bank to abandon the scheme. The Riverside South site remains a valuable commercial asset however, and JPM retains the option to sell the land, either back to CWG, another developer or even to the Corporation of London, which would give them a prime development site with planning permission for a 1.9 million ft2 office scheme in their rivals back garden.
The Riverside South site in July 2010
A decision by JPM is likely to be taken by the end of the year, including the long term futures of the two other major offices in Bournemouth and Glasgow. The Mayor of London, Boris Johnson has long been a staunch supporter of the City of London, and neither he nor Cameron will want to see the US bank turn its back on London, however ultimately the decision rests with the man holding all the aces, Jamie Dimon.
