Cox: Amsterdam has first-world financial dilemma
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Amsterdam has a history of enticing foreign entrepreneurs with financial incentives. At the start of its golden age in the 17th century, the city used public funds to bring glassblowers from Venice, artisans making gilded leather wall hangings from Antwerp and hatters from France.
And when the Dutch Republic captured two Portuguese silk ships, the city offered Lisbon merchant Manuel Rodrigues de Vega 120,000 guilders to set up shop because “it was anxious not to miss out on yet another lucrative trade,” according to Geert Mak’s “Amsterdam: A Brief Life of the City.”
Britain’s decision to leave the European Union will likely force scores of international companies and banks to move their European headquarters somewhere else inside the world’s largest trading bloc. The likes of Dublin and Paris are aggressively wooing firms like Goldman Sachs, Morgan Stanley and Mitsubishi to relocate. At last week’s International Monetary Fund meetings in Washington, Frankfurt displayed signs advertising the city as “A place for bankers, hipsters and for you.”
Much as Paris and Frankfurt have their attractions, however, the London-based European head of one of Wall Street’s top investment banks recently told me: “the best place of all would be Amsterdam. I just question whether the Dutch want us.”
It’s easy to see why modern masters of the financial universe have a soft spot for Amsterdam beyond its charming canals and the easy availability of cannabis sativa. “Finance is in the DNA of the people,” says Karl Guha, chairman of Van Lanschot, a Dutch wealth management and merchant banking group.
That’s not hyperbole. In 1602, five years after a fleet of Dutch sailors established a trade route to India, Amsterdam’s merchants established the Dutch East India Company (VOC), effectively the world’s first limited-liability multinational enterprise. To trade the VOC’s stocks and bonds and promote risk sharing, the city founded what was in essence the first stock exchange.
The joint-stock company, which was granted a monopoly on Asian trade, was financed by more than 1,800 investors, who chose 17 directors to oversee its affairs. The City Exchange Bank, basically the world’s first central bank, opened in 1609 to handle the foreign coinage flowing into Amsterdam. The VOC’s success led to the founding of a second enterprise – the West India Company, which established the Nieuw-Amsterdam colony, today known as New York. It was arguably the most successful startup in human history.
City leaders keenly recall Amsterdam’s heritage of financial innovation in their pitch to London’s banking exodus. “To live in Amsterdam is to dwell in living history, with all the comforts of a modern metropolis,” says Jan Paternotte, leader of the D66 party on the Amsterdam City Council. “Add to this the established reputation as a hotbed of liberal innovations like same-sex marriage and regulated recreational drugs and you know it is a special place.”
Paternotte also argues that Amsterdam is safer than other big European metropolises, loaded with culture and recreational opportunities, and nearly everyone speaks English. More practically, it has the transportation infrastructure bankers need: a world-class airport with connections throughout Europe and to Asia and the Americas that’s 20 minutes by train from the city center.
“When living in Amsterdam I often left my home one hour before departure and still made the flight without a sweat. Compare that to Heathrow or Charles de Gaulle,” notes Joris Luyendijk, a Dutch author who chronicled banking culture in the City of London in “Among the Bankers: A Journey into the Heart of Finance,” which was published last month in the United States, and sold 300,000 copies in the Netherlands.
Providing adequate housing to accommodate an influx of white-collar workers won’t be easy. And there are not enough positions in international schools. But as the city council’s Paternotte points out, the Dutch are good at finding creative solutions to problems – just look at land they have reclaimed from the sea over the centuries. “If we need to boost housing capacity, Amsterdam will find a way,” he says confidently.
What’s not to like? Top of the list is the “Dutch Act on the Remuneration Policies Financial Undertakings”, which came into effect in February 2015. The law sets a 20-percent cap on bonuses paid to financial industry staff. That’s even more draconian than the rules that apply in the rest of Europe, which limit bonuses to 100 percent of salary – or 200 percent if shareholders approve.
True, there are some nuances to the rule, which was adopted after the near failures of Dutch banks, principally ABN Amro, in the financial crisis. The cap, for instance, “does not apply on an individual basis, but to the average bonus of such staff collectively,” notes Floris van de Bult, a labor lawyer at Clifford Chance in Amsterdam. And some employees of foreign firms can avoid the restrictions altogether.
As in much of the West, there is little appetite to relax the rules restraining the pay of wealthy bankers. If anything, Dutch legislators are more likely to extend them to other arenas of finance, like insurance or asset management. “Realistically speaking, one could assume that no politician will get elected on a promise that they will eliminate the bonus cap,” says van de Bult.
That may be the biggest dealbreaker of all for Amsterdam’s pitch as a financial center. While it might mean U.S., Swiss and Japanese investment banks and trading firms can find ways to make Amsterdam their new European headquarters, they run the risk of creating second-class citizens of locals. It’s hard to envision a worse way to revive the public fortunes of the banking class.