Letter From New York

In the wee hours of last Friday morning (29 September) a low pressure weather system moved upon New York City, heading north west from the Atlantic. By dawn, the torrential rain had wrought a Biblical deluge across much of the City. And still the monsoon continued through the morning. The New York Subway system, on which so many commuters rely, began to flood. The streets and avenues of the Manhattan grid became torrents. Trees fell on the southern edge of Central Park, making West 59^th Street impassable. John F Kennedy Airport recorded eight inches of rain by midday – a record. At 11:00 hours New York Governor, Kathy Hochul (Democrat), fearing imminent loss of life, declared a state of emergency. My mobile phone (sorry, cell phone) went into a paroxysm of screeching. Twice, in fact.

My challenge was that I had to get to an afternoon meeting – one that had been long planned. When I asked the hotel concierge to summon a yellow cab, he looked at me with an expression that suggested that this British person was mentally incapable: “I guess you could try Uber,” he drawled: “And good luck with that.”

I decided to brave the elements and walk. I purchased a transparent plastic poncho emblazoned with “I LOVE NEW YORK” from a street vendor ($7 – “made in China”) and splashed my way along 46^th Street towards midtown. My destination was 383 Madison Avenue, the headquarters of JP Morgan Chase & Co.

383 Madison is one of New York’s iconic corporate palaces – an octagonal tower which rises through 47 floors out of a squat square base, designed by David Childs of Skidmore, Owings & Merrill LLP (SOM) and completed in 2001. It was formerly the headquarters of Bear Stearns, the brokerage house which was one of the first victims of the financial crisis and which JP Morgan acquired for one dollar in March 2008. JP Morgan subsequently decamped from its once hallowed ground at 23 Wall Street, which it had occupied for nearly a century, to midtown. In so doing, the bank was following a trend to relocate away from Manhattan’s traditional financial district.

Just across the street on 47^th and Vanderbilt, a tower is going up which will become within a few years the new headquarters of JP Morgan Chase. The site of this new tower was previously occupied by the Chase Manhattan Bank, with which JP Morgan merged in 2000 to create one of the largest banks in the world, which now has total assets of $3.2 trillion. JP Morgan, an iconic Wall Street brand, brought outstanding reach in global corporate and investment banking; Chase brought an extensive US and international retail branch network. But as is often the case with mergers, differing corporate cultures did not easily meld. A swathe of JP Morgan people left the new bank. One former colleague of mine who had reached senior management was quoted at the time as saying that “size is not everything”.

I counted about eight sites in midtown alone where new towers are going up, and about four where towers are coming down. Once a New York building becomes uneconomic, or even sub-optimal, it is condemned. You might say that construction is New York’s primary industry – together with construction’s ugly sister, the demolition business. There is only one thing more technically challenging than building a tower in a city already tightly packed with skyscrapers. That is demolishing one. The trick is to apply the explosives such that the debris falls only within the footprint of the building. Somehow, New York’s demolition men have worked out how to do that.

At a presentation for the benefit of thirty or so of us who attended the JP Morgan training course in New York forty years ago – the Class of ’83 – we were reminded of JP Morgan CEO Jamie Dimon’s dictum that all financial crises originate in the real estate sector. But for now at least, the banking sector is flourishing, even if it is under pressure like everyone else.

The mantra of today is cheaper, better, faster. In the old days it might take weeks or even months to put together a major syndicated loan facility for a multinational company. These days, massive financing facilities can be put together in days. Consider the financing deal put together in October last year to facilitate Elon Musk’s purchase of Twitter for $44 billion. JP Morgan has industry experts all over the globe who can be called upon to drop everything to analyse a prospective deal.

As a universal bank, JP Morgan’s revenues are more diversified than most. Last year, the bank generated net revenues of around $33 billion. Of that, about $10 billion was attributed to the investment banking business – underwriting fees and commissions for M&A advisory and so forth. JP Morgan was a lead underwriter in the recent listing of ARM Holdings on the NASDAQ. I was told that total investment bank income globally is about $90 billion, so JP Morgan’s market share in this sector is impressive. And of course, retail banking is relatively labour intensive, even if very profitable; whereas the investment banking side is conducted by a relatively small team spread across the world’s principal financial centres.

The bank that I joined some 40 years ago had just over 11,000 personnel worldwide. Jamie Dimon currently presides over a JP Morgan Chase with about 220,000 employees globally. The bank even in the early ‘80s was old-fashioned with liveried doormen who wore white gloves and meeting rooms with squeaky leather armchairs. That has all gone. But – I am assured – the values have not changed. JP Morgan still sees itself as a byword for integrity.

That is, anecdotally, is why all the banks’ construction projects come in late and overbudget, especially in New York. I’m told that the bank will not play ball with “the mob”. Consequently, wildcat strikes and unexplained delays in the delivery of building supplies occur with curious regularity. But Morgan always gets there in the end.

One Vanderbilt stands two blocks down from the JP Morgan Chase HQ. It is the latest and most dazzling tower to adorn the New York skyline. 93 stories tall, it was designed by Kohn Pederson Fox (KPF) and completed in 2020 – even during the pandemic lockdown construction work continued. Normally, the upper stories command spectacular views over the city and beyond; but last Friday, at a drinks reception hosted by a leading hedge fund, all one could see was murk.

Thankfully, the rain had stopped by the time we set out for dinner at the Harvard Club.

***

A Wall Street veteran who is also a lifelong New Yorker tells me that the middle classes and high earners are leaving New York City in favour of greener pastures. That is easier to do with the trend to work part of the week at home. As they do so, the City’s tax base is shrinking at exactly the moment when its welfare bills are rising. Reportedly, migrant shelters alone are costing New York City taxpayers $20 million per month. New York City, for all its apparent wealth, has gone broke before – in February 1975 – when it had to be bailed out by the Federal government. It could happen again.

The migrant issue is now at the top of the political agenda, both nationally and in New York City. Last month, more than 260,000 people crossed the southern border illegally into the USA. There were an estimated 2.6 million such crossings last year, with only a handful of people having been deported. Since President Joe Biden was inaugurated in January 2021, it is possible that up to seven million migrants have entered the USA – though no one knows the precise numbers because many of these people have disappeared into the black economy.

The southern border with Mexico runs from the Pacific to the Gulf of Mexico, touching four US states: California, Arizona, New Mexico and Texas. It has proven impossible to police this border effectively, despite Mr Trump’s promise to build a wall, which is only partially complete, and which is clearly not impenetrable. What grates with Republicans is when Democrat legislators assert that the southern border is “secure”, when evidently it is not.

Many of the huge numbers of illegal migrants end up in New York – partly because they are bussed there by Southern states which cannot handle the scale of the influx, and partly because they choose to make their way to the most famous city in the world, thinking they are guaranteed work there. But the reality is that illegal migrants are not permitted to work because they do not have the requisite papers, and it takes time to process their applications to remain in the USA. (Sounds familiar). Many, in fact, do not even apply formally to remain and disappear into the black economy. Hostels are available, but many end up homeless and living on the street.

There are broadly two approaches to the issue. One school of thought is that all migrants who apply should immediately be given work permits. That might address labour shortages. The counter argument to that is that, if it were to be enacted, the entire populations of nations like Nicaragua and Guatemala would head north and only the infirm would be left behind. The other school of thought is that the border should be policed more robustly, though what that means in practise is never spelled out.

Thus far, President Biden has refused to make a symbolic visit to the southern border: he knows that that could be a political trap. Instead, he has sent Vice President Kamal Harris, equipped with binoculars. But Elon Musk went there last week, accompanied by a phalanx of journalists and photographers. His view was that America has a problem – as if Americans didn’t know that already. That prompted New York City Mayor Eric Adams (Democrat) to make a visit too. Fox News opined that Democrats only get exercised over the migrant issue when it affects them on their own doorstep.

***

Three things have got much worse in New York since the pandemic lockdowns. People are calling in sick for work in record numbers, youngsters are not turning up for school and shoplifting (what Americans call “retail theft”) is rife. Exactly as in the UK. And it’s even worse in San Francisco.

The large stores employ security but the smaller privately run stores are being hit the worst by people who walk in, grab what they want and casually walk out, knowing that the chances of being caught are minimal. Having survived the pandemic and the wave of inflation of the last two years, many small store owners are thinking of locking their doors for good.

It seems that, somehow, the lockdowns loosened the threads that bind us. Attitudes have changed for the worse. Society is becoming less social. I haven’t read any serious attempt to explain this. Where are the sociologists and the socio-psychologists when you need them?

***

I was sauntering down Fifth Avenue on a gloriously sunny Monday morning (2 October) in the general direction of Washington Square when Mr Trump’s motorcade swept past – a posse of gleaming jet-black GMC Yukons with tinted windows. It was on its way to the New York County Supreme Court in Foley Square where the ex-president was arraigned for fraud.

The charge against Trump, pressed by the Attorney General of New York State, Letitia James, is that he fraudulently inflated the value of various of his real estate assets in order to obtain cheaper debt finance from banks. If convicted (by a judge, not a jury) on this civil (not criminal) charge, Mr Trump will face a fine of up to $250 million and will not be able to operate in the State of New York. That means that the Trump organisation would have to sell Trump Tower on Fifth Avenue and the two other trophy buildings (one a hotel, one an office block) in New York City.

I am not a fan of Mr Trump, but this case is patently absurd, and probably – as he claims – politically motivated. All borrowers put the best possible valuations on their assets when they offer them as collateral against bank loans. The value of real estate, as with other assets, can only be determined by the last sale and purchase of an equivalent asset in the open market – and that is why valuations are constantly changing. Conversely, banks have a fiduciary responsibility to evaluate collateral before they advance loans, and they have extensive expertise in this domain. If they don’t believe in the value of the collateral they will change their lending terms – or not lend at all. It is as simple as that. Finance flows to the real sector on its merits and does not require the intervention of the state.

Mr Trump and his trial judge, Arthur Engoron, are no strangers to each other. In the past, Judge Engoron has forced Mr Trump to submit a deposition, held him in contempt of court and once fined him $110,000 dollars. Mr Trump has previously described Mr Engoron as “unhinged”. Both men spent their childhoods in Queens (one of the five boroughs of New York City), but their politics are very different. Mr Engoron protested against the Vietnam War in the 1960s and has been a member of the American Civil Liberties Union since 1994.

On Tuesday, Mr Trump was back in court with all guns blazing. He indicated that he will take the witness box “at the appropriate moment”. That will be entertaining. On the same day, the President’s son, Hunter Biden, appeared in a court down the road in Delaware on firearms charges, and pleaded not guilty. And in another Manhattan courtroom the trial of Sam Bankman-Fried, the founder of the collapsed FTX cryptocurrency trading platform, began.

In New York one is never far away from a gripping courtroom drama.

***

Meanwhile, the presidential race of 2024 is gearing up.

On Wednesday of last week (27 September) the second debate of Republican presidential hopefuls took place at the Ronald Reagan Presidential Library, Simi Valley, California. The seven candidates strutted their stuff. Nikki Haley, the former Governor of South Carolina and US Ambassador to the United Nations, was judged to have acquitted herself well. But the winner was said to be the man who was not there: Donald Trump. The debate barely moved the dial at all on Mr Trump’s ratings amongst Republican-inclined voters.

For his part, Donald Trump travelled to Detroit, Michigan to deliver a prime time address to striking workers. (Mr Biden had made a performative appearance on a picket line the day before). On Saturday (30 September), Mr Trump flew to California and held a rally of the Republican MAGA faithful in which he used language which was widely described as “violent”. Having suggested online that former Chief of the General Staff, General Mark Milley should face the death penalty (how Putinesque is that?), he told his audience that shoplifters should be shot on sight. The audience cheered him.

At a reunion dinner in a hip Italian restaurant in Chelsea on Saturday night, several not-poor American friends told me that Trump is “ghastly”. Such people think his re-election would be a disaster for America and for the world. Ergo, even the re-election as president of a man in swift cognitive decline is preferable.

***

Down in the deep south of Manhattan, things are changing. One World Trade Centre shimmers in the sunshine. 1,776 feet tall, its height reminds Americans of the Declaration of Independence, as well as of New York’s defiance. The Nine Eleven Memorial – two limpid pools of water that seem to cascade into infinity, built on the footprints of the twin towers and designed by Israeli architect Michael Arad – always brings a lump to my throat.

One Wall Street, the once iconic home of the Irving Bank is now a condominium. 23 Wall Street, former citadel of the House of Morgan, stands empty. Broad Street is now largely residential. Only the New York Stock Exchange remains there now.

Eventually, I confirm the rumour. The massive chandelier which hung in the lobby of 23 Wall Street, and under which the group photograph of the Class of ’83 was taken, now incongruously adorns the lobby of the condominium building that is 15 Broad Street. It is so outsize that they have dug a hole in the floor to accommodate its bulk.

Like the remorseless passage of time, there is something sad about that.

Such is life.

Listed companies cited in this article which merit analysis:

• JP Morgan Chase & Co. (NYSE:JPM)
• ARM Holdings (NASDAQ:ARM)