Financial crisis puts cloud over Edinburgh

23.1.2009   (Financial Times)

By Andrew Bolger, Scotland Correspondent

Passengers arriving at Edinburgh Airport notice few signs of recession – apart
from a long line of taxis, whose drivers complain that business travellers are
much more likely to take a bus into the city centre.

But the carpark across from the terminal no longer has “fast track” spaces for
executives of Royal Bank of Scotland, the pride of the capital’s financial services
sector until it was forced during October’s banking meltdown to sell most of its
shares to the government.     RBS has also stopped using the private jet in which
Sir Fred Goodwin, former chief executive, visited his international empire.

Buses into Edinburgh pass the £350m global headquarters that RBS opened four
years ago, where more than 3,000 people work on a campus-style development.   Arriving
in the city centre, passengers looking up to the skyline of the old town see the
impressive headquarters of HBOS, created by the 2001 merger of Bank of Scotland
and Halifax, the mortgage bank. But the merged entity has just been swallowed
in a rescue takeover by Lloyds Banking Group.

These two very different buildings are the focus of a fear of unemployment that
is gripping Edinburgh.   From having been the most vibrant part of the Scottish
capital’s economy, financial services – or at least banking – has been transformed
in a few months into its most vulnerable sector.

Edinburgh was relatively unscathed by the last recession, having largely escaped
the post-1987 surge in credit and housing prices and the subsequent crash. Indeed,
the city has only just witnessed its first year-on-year fall in house prices since
the Edinburgh Solicitors’ Property Centre started collecting figures in 1971.

The city did not completely escape the last downturn. GEC Ferranti, the military
electronics group, cut its Edinburgh workforce from 6,700 in 1989 to about 4,000
by 1992. But the resilience of financial servicesprovided a cushion.

Research by Leeds University found financial jobs being created outside London
– including Edinburgh – in spite of the recession.

The recent banking meltdown has therefore sent shock waves through the city,
where 31,000 people work in financial services – 10 per cent of the total workforce,
including many of the capital’s best paid employees. RBS and HBOS are at the head
of the queue for government bail-outs.

A report to Edinburgh city council by Dave Anderson, director of development,
said of HBOS’s demise: “The full impact of this takeover on jobs and economic
prosperity in the city is not yet clear. However, it highlights starkly the city’s
dependence on jobs in a small number of key companies in one particularly dominant
industrial sector.”

There are 17,600 HBOS employees in Scotland and Lloyds TSB has 7,000 Scottish
employees. Rationalisation is inevitable, given that more than half the forecast
£1.5bn of annual savings from the merger are predicted to come from the retail
banking operations.

RBS has 16,500 employees in Scotland, but that is less than 10 per cent of the
group’s total of 170,000.

Lloyds said its focus would be to keep jobs in Scotland but even Alistair Darling,
who helped smooth the takeover of HBOS, said he was “extremely concerned” about
local employment. The chancellor represents an Edinburgh seat, so will have lots
of worried constituents.

The takeover was all the harder to bear because earlier last year the UK’s largest
brewer, the Edinburgh-based Scottish & Newcastle, was sold to Heineken and
Carlsberg for £7.8bn.

Researchers at Glasgow University have found that large corporate headquarters
have long-term “spillover” effects on the local economy. Their purchasing power
helps develop business, legal and information technology services. Headquarters
can also boost the “business birth rate”, attract and retain talent, and sponsor
economic development.

It was during the last recession that work begin on the Edinburgh International
Conference Centre. Since it opened in 1995 the centre has bolstered the city’s
tourism sector, which accounts for about 25% of Scotland’s tourism earnings.

The growth of cheap flights has also helped establish Edinburgh as a year-round

But there is nervousness over whether the city’s plethora of summer arts festivals
will suffer from a reduction in corporate sponsorship as the recession bites.
And, as Mr Anderson told the council: “Evidence is beginning to emerge of a reduction
in tourism visits and spending.”

Some of Edinburgh’s best known institutions are living under a shadow