Financial Services Firms Continue To Flee To Tax-Friendly States
The New York Stock Exchange was founded on May 17, 1792. Pretty much ever since then, New York City and the surrounding areas have been the heart of the global financial system. However, over the last few years, more financial services firms are packing their bags and it can mostly be attributed to one reason - taxes.
According to the Tax Foundation, the nation’s leading independent tax policy research organization, New York, New Jersey and Connecticut are three of the four worst overall states in the U.S. in terms of business tax climate.
JPMorgan Chase & Co., which is the largest bank in the U.S., has had a presence in New York City for centuries. With profits the top priority, none of that history matters, so JPMorgan is the latest company looking for ways to reduce its presence in the city. In preparation for an economic downturn, the company is reportedly looking to move thousands of employees to cheaper locations such as Texas, Ohio and Delaware.
JPMorgan, which has 25,000 employees in Texas, currently has more job openings in the state than New York, New Jersey and Connecticut combined. CEO Jamie Dimon even said last year "There are more JPMorgan Chase employees in Texas than any other state outside of New York. I’m sure it will be No. 1 soon."
JPMorgan joins a long list of companies that have fled New York City over the last few years. Goldman Sachs has expanded operations in Salt Lake City, which is now the company's fourth-largest location. AllianceBernstein moved its headquarters to Nashville from New York City last year, bringing more than 1,000 jobs with them. Jacksonville has turned into Deustche Bank's second-largest location following New York City.
It's not just large financial services companies packing their bags. Top hedge fund managers have been flocking to Florida, almost certainly driven by the state's lack of income taxes. David Tepper moved Appaloosa Management to Miami. Paul Tudor Jones, while maintaining Tudor Investment's headquarters in Connecticut, opened an office and took residency in Florida. Carl Icahn is set to move Icahn Enterprises to Miami early next year, whether his employees like it or not.
According to Kelly Smallridge, president and CEO of Palm Beach County’s Business Development Board, more than 70 financial services companies have moved to the county in the last three years with more currently discussing moving. "I cannot keep up with the number of companies coming in," Smallridge said. "Some are headquarters, some of them are regional operations. Many of them, once they get here, within short order establish [Palm Beach] as their home base."
While New York City is still the finance capital of the world, the headlines of financial services companies leaving the city for lower tax areas is becoming increasingly common. With so many jobs likely to be replaced by robots, such as equity traders, and the cost of doing business there continuously increasing this trend is most likely to continue.
Up in vape smoke. Both Altria and Fidelity have slashed the value of their investments in Juul in recent days. Altria, which purchased a 35% stake for $12.8 billion, wrote down the value of its investment by $4.5 billion. Altria cited the likelihood the Food & Drug Administration bans flavored pods among the reasons for writing down Juul's value. Fidelity, which owns shares of Juul in various funds, slashed the value of its stake in the Blue Chip Growth Fund by nearly 50%. The fund, which holds two-thirds of Fidelity's entire stake in Juul, now values the shares at $386 million, implying a loss of nearly $400 million.
They saw what happened with GM. Ford, likely not wanting to face a lengthy strike, struck a tentative labor agreement with the United Auto Workers union after just three days of negotiations. Following a 40-day strike that cost GM $2 billion, the UAW set its sights on Ford. The deal, which includes many of the same terms as the GM deal, will see the creation or retention of 8,500 jobs and $6 billion in product investments in American facilities. The agreement will be sent to UAW local leaders for a vote of approval before being sent to Ford’s 55,000 UAW members for a ratification vote.
It's not like he'd admit to it. Former Exxon Mobil Corp CEO Rex Tillerson denied in a Manhattan court the company misled investors about the financial risks of climate change. The company is accused of using two sets of books to account for the costs of climate change, therefore costing investors $1.6 billion. "We knew it was a serious issue and it was going to be with us now and forever more," Tillerson said. "We would have been irresponsible if we didn’t think about the implications of this." Also last week, Massachusetts filed a similar lawsuit as this one against Exxon.
What could go wrong? The U.S. Securities and Exchange Commission is seeking feedback on loosening regulations for the issuance of SEC-registered residential mortgage-backed securities (RMBS). Following the financial crisis, the SEC introduced disclosure requirements that issuers provide more information, including 270 different data points, regarding the quality of the underlying loans. The move is aimed at revitalizing the market, which has slowed in recent years.
Dog park and chill? As if there's not enough dating apps, a new app called "Wowzer" just launched that aims to match dog lovers. The app is launching in Seattle, which was recently rated the "most dog-friendly" city in the U.S. "This business was born out of a desire to help our single dog-loving friends meet people who share their interests and values," said one of the app's co-founders.