Foreign direct investment (FDI) into financial services in the US fell 11.7% last year to $732.1m, amid the fallout from Covid-19; however, investment increased in some states, as financial institutions reconsidered their strategies in light of the pandemic and the need to be based in New York.
The UK remained the top source of financial services investment into the US last year. The UK was responsible for 19 financial services and fintech projects in 2020, compared to 20 in 2019. In the first quarter of 2021, the UK invested in seven financial services and fintech projects in the US.
Capital expenditure investment from the UK rose from $171.3m in 2019 to $181.6m in 2020, according to FT-owned greenfield data monitor fDi Markets. In the first quarter of 2021, UK financial services and fintech companies invested $65.4m in the US.
The UK is still the biggest inbound mergers and acquisitions source [in the US],” says Ken Rivlin, global co-head of the international trade and regulatory group at law firm Allen & Overy.
Investment from the UK outstrips other European countries, such as Switzerland (which invested $42.6m last year) and France (which invested $52.2m), according to fDi Markets.
UK deals in 2020 included digital payments company B4B Payments opening an office in Boston, Massachusetts, as part of a strategic collaboration with Visa; and Jupiter Asset Management opening its first US office in Denver, Colorado.
Barclays Bank, meanwhile, is investing $6.9m in Wilmington, Delaware, creating 300 jobs.
Rethinking New York
The locations chosen for financial services FDI reflects part of a wider shift. As one of the world’s leading financial hubs, New York remains the top location for foreign financial services investment in the US, but the Covid-19 pandemic has accelerated a trend among financial services groups looking beyond the Big Apple, and running some of their operations elsewhere.
The city attracted $1.1bn in financial services foreign investment last year, down from $1.6bn in 2019, according to fDi Markets.
“New York remains dominant, but there has been a bit of movement around the edges,” Mr Rivlin says. “The pandemic has helped people recognise that a lot of work can be done elsewhere. There is a bit more geographic flexibility in financial services and people are not feeling quite as tied to New York as a main financial centre.”
With its year-round sunshine and miles of coastline, Florida has benefited from this realignment. The state attracted $457m in financial services investment in 2020, up from $362m in 2019. In the first quarter of this year, Florida attracted $162m in financial services FDI.
There is a bit more geographic flexibility in financial services and people are not feeling quite as tied to New York
The deals include Santander Consumer USA, a consumer finance-focused subsidiary of Spain’s Santander Group, investing $98.7m opening an office in Odessa, Florida, creating 850 jobs.
Several firms have opened offices in Miami, including UK loss-adjustment business Integra Technical Services, Swiss private banking group Julius Baer, and Sanctuary Wealth, a subsidiary of Italy’s Azimut Group.
Texas attracted $100m in financial services FDI in 2020, compared to $553m in 2019. The deals include UK energy broker Arraco Global Markets opening an office in Houston.
The number of deals by Mexican financial services firms into the US also jumped in 2020, from zero projects in 2019 to six projects totalling $57.7m. The deals include investment by Banorte-Ixe Securities International, a subsidiary of Mexico’s second-largest banking company, Grupo Financiero Banorte, which is expanding its operations in Texas. The company recently moved its headquarters to Houston from New York.
“There’s a lot of movement in goods, services and people between Texas and Mexico, and some investments reflect that,” Mr Rivlin says.