Thursday, September 30, 2010

On Regulation and Real Estate

Goldman Sachs is preparing another temper tantrum over regulation, this time it is threatening to quit Europe if the region comes down too heavily, according to today's FT. 
The bank has already thrown some toys out of the pram in the U.S., leaking that it wants to spin off its prop trading arm well in advance of any Volcker Rule taking effect. (Although why anyone would pay GS for the privilege is beyond me, just hire the traders away!) Now CEO Lloyd Blankfein is predicting gloomily that mismatched regulation between the U.S., EU and other regions will cause banks to move. GS already booked some extra space in Zurich, but perhaps that is too close to Basel. The last thing GS wants is to have to responsibly manage its leverage.
Zurich is the next stop for many banks on the regulation underground. Escaping to Switzerland for tax purposes started a few years back and the trend has grown exponentially in the past two years as regulation in the EU looms. The U.K. is losing hedge funds and bank trading arms in droves. Geneva, arguably the most civilized and pleasant of Swiss banking centers, is overflowing with foreigners. The International School apparently has a long waiting list for entrants. Good rental accommodation is like gold dust, my sources tell me. Many bankers are leaving their families back home while they stay in hotels and try to find reasonable houses or flats to rent. And the rental rates are going through the roof.
If real estate speculation is your game (it is mine, although not on this scale), then Zurich and perhaps Zug and Basel might be good places to buy rental property. Singapore might be next.
However, it is my opinion that no one can escape the long arm of the regulators. Having a base in a lightly regulated country may help to avoid excessive taxation and perhaps even some capital requirement constraints for now. But when you go to do business in the U.S. and the U.K. or Europe, which you will, you might have your hand bitten off. I'd stick to real estate.

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