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Princeton, New Jersey, USA

Prepared by: The Boyd Company, Inc.
November 12, 2019
 

THE COST OF OPERATING A BACK OFFICE IN LONDON

DETAILED IN NEW BOYD REPORT

San Francisco and New York are the Highest Cost Banking Hubs

Job migrations from the two global capitals of the banking & financial services industry –
London and New York - are continuing at an accelerating pace fueled by soaring
operating costs for labor, real estate and taxes in both markets. A new Boyd Co. site
selection study compares these costs in London and New York as well as in 18 other
current and up-and-coming financial services hubs in the UK, Europe and North America.

The Boyd study found San Francisco, California, to be the most expensive city to operate
a back office at $13.6 million ($US) per year and Warsaw, Poland, the least costly at
$4.7 million per year. Comparing the two global banking hubs of London and New York,
London shows very well at $11.2 million, 15.1 percent less expensive than New York’s
$13.3 million and 17.6 percent cheaper than San Francisco.

Popular Brexit landing spots like Paris ($9.7 million), Frankfurt ($8.8 million), Amsterdam
($8.6 million), Dublin ($8.0 million) and Madrid ($6.4 million) are also included in the Boyd
comparative cost analysis.

Boyd clients in the banking & financial services sector are increasingly turning their
attention to the cost side of the ledger in response to rising regulatory and compliance
expenses on both sides of the Atlantic and new competitive pressures from upstart fintech
players. Cities showing an attractive operating cost profile are being highly favored by
Boyd’s site-seeking clients - now all focusing heavily on bottom line economics.

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What it Costs to Operate a Financial Services Back Office in London: The Highs and Lows (1)
Highest Cost Lowest Cost Highest Cost Lowest Cost
North America City North America City European City European City
London Paris Leeds San Francisco Montreal Geneva Warsaw
UK FR UK CA QC CH PL
Labor Costs
Weighted Average Annual Earnings $42,039 $31,557 $39,203 $58,930 $34,649 $38,841 $12,986
Annual Base Payroll Costs $5,254,830 $3,944,629 $4,900,338 $7,366,250 $4,331,154 $4,855,100 $1,623,273
Fringe Benefits $2,101,932 $2,603,455 $1,960,135 $2,799,175 $1,169,412 $2,233,346 $844,102

Total Annual Labor Costs $7,356,762 $6,548,084 $6,860,473 $10,165,425 $5,500,566 $7,088,446 $2,467,375

Electric Power Costs $123,192 $93,006 $123,192 $154,440 $59,494 $105,638 $83,198

Office Rent Costs $2,203,078 $1,510,579 $740,681 $1,459,800 $737,154 $2,111,060 $687,053

Amortization and Sales Tax Costs $1,500,063 $1,510,314 $1,500,063 $1,727,750 $1,636,619 $1,598,366 $1,456,984
Corporate Travel Costs $108,316 $91,826 $70,324 $140,585 $58,920 $106,906 $43,810

Total Annual Geographically-

Variable Operating Costs $11,291,411 $9,753,809 $9,294,733 $13,648,000 $7,992,753 $11,010,416 $4,738,420

NOTES:
(1) Total annual operating costs are scaled to a hypothetical 30,000 sq. ft. (2,787 sq. m) financial services back office employing 125 workers. The analysis includes all
major geographically- variable cost factors critical to the site selection process, including labor, office rents, power, taxes and others. All costs are in U.S. dollars.

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Location Consultants
Princeton, NJ 
 
 
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Artificial Intelligence: A New Site Selection Driver

The rise artificial intelligence (AI) is disrupting the global banking & financial services
industry, unearthing great opportunities for efficiencies, and at the same time, creating
new challenges. One of these new challenges is determining the best location to relocate
back office operations and transactions centers given the industry’s growing reliance on
AI.

While job seekers may still be flocking to attractive Canary Wharf and Wall Street jobs
today, the banking industry is expected to be ground zero for job losses due to AI.
Pointing to a fourth industrial revolution, The Bank of England’s chief economist, Andy
Haldane, has warned of unemployment on a mass scale in the UK’s banking sector due
to the impact of artificial intelligence and machine learning. The think tank Centre for
London has forecasted that one of every three jobs in London has the potential to be
taken over by machines within the next 20 years.

Financial companies such as Bank of New York Mellon with operations in Leeds and
American Express in London and Brighton have become early adopters of a new
generation of artificial intelligence and robotic-process-automation technology that
automate human tasks in operations, wealth management, algorithmic trading, risk
management, compliance, loan processing and other areas. Boyd client JP Morgan
Chase with operations in London and Bournemouth is preparing thousands of databases
to make room for machine learning.

But job loss projections due to AI fail to tell the whole story. What banking & financial
services clients are telling Boyd is that AI will indeed displace jobs in some areas but it
will also create a significant number of new jobs highly dependent on AI elsewhere in the
organization. What matters most today is a pipeline for smart automation talent and where
can these pipelines be found.

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Location Consultants
Princeton, NJ 
 
 
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Cost Ranking and Top AI Programs

Shown in the following table is an overall cost ranking of the 20 global financial hubs in
the Boyd analysis, along with prominent academic programs in artificial intelligence in
each market for recruiting top AI talent.

Top 20 Global Financial Services Hubs

Total Annual Prominent AI

Back Office Location Operating Costs Academic Program
San Francisco, CA $13,648,000 Stanford University
New York, NY $13,306,052 Columbia University
Boston, MA $12,333,832 MIT
Los Angeles, CA $12,000,968 University of California-Los Angeles
Chicago, IL $11,786,333 University of Chicago
London, UK $11,291,411 London School of Economics
Geneva, CH $11,010,416 University of Geneva
Jacksonville, FL $10,131,242 University of North Florida
Milan, IT $9,900,735 Politecnico di Milano
Paris, FR $9,753,809 Université Paris-Saclay
Leeds, UK $9,294,733 University of Leeds
Brussels, BE $8,877,640 Vrije Universiteit Brussel (VUB)
Frankfurt, DE $8,867,987 Goethe University Frankfurt
Amsterdam, NL $8,675,921 University of Amsterdam
Toronto, ON $8,606,484 University of Toronto
Vancouver, BC $8,423,702 The University of British Columbia
Dublin, IE $8,024,087 Trinity College
Montreal, QC $7,992,753 University of Montreal
Madrid, ES $7,257,361 Polytechnic University of Madrid
Warsaw, PL $4,738,420 University of Warsaw

London and Brexit

No one, including Boyd, expects London and New York to relinquish their titles as the two
most significant global banking & financial services hubs, Brexit or no Brexit. That said,
both will continue to be challenged by competitive cities in the now global tug-of-war for
new corporate investment and jobs.

The Boyd Company, Inc.

Location Consultants
Princeton, NJ 
 
 
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In London, the full effect of Brexit job losses - to date vastly overstated - will ultimately
be measured in the months and years ahead depending on the trade deal finally agreed
to with the EU. Within the UK, London-based banks and financial services companies
will continue to decentralize jobs to smaller, less costly and less congested UK markets
to the south like Tunbridge Wells and Bristol and to the north like Manchester and Leeds.

In Europe, Britain's departure from the EU is giving tailwinds to the bloc’s longstanding
efforts to establish a significant capital market to compete with London. Paris and
Amsterdam, in particular, are positioning themselves to house this new center of capital
market activity. Amsterdam is already home to the world's first stock exchange and, like
Britain, has been a leading trading nation for hundreds of years.

From a jobs standpoint, London is not terribly vulnerable since trading platforms are
basically a highly-regulated collection of computer servers and are not major employers.
That said, a significant success in trading poaching by either Amsterdam or Paris could
lead to the attraction of businesses and jobs in support sectors like listings and clearing
from London.

Across the Atlantic

The UK’s future trade deal with the U.S. will also have its effect on possible job migrations
across the Atlantic from London to New York or to lower cost U.S. alternatives, a growing
site selection trend in America. Jacksonville, Florida, e.g., has gained over banking 5,000
jobs during the past five years led by back office expansions at Deutsche Bank, Ernst &
Young, Fidelity and Sydney-based Macquarie which recently opened a major Jacksonville
hub. Nashville, Tennessee, recently attracted the head office of Wall Street trader
AllianceBernstein with some 1,200 new jobs.

Montreal - the low cost North American location in the Boyd study - is home of the
Montreal Exchange specializing in derivatives trading. Besides low costs, Montreal offers
some of the most lucrative incentives available to the financial services sector and

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benefits from Canada’s open immigration policies for global hiring – a counterpoint to the
restrictive immigration policies in the U.S. under the Trump administration. Montreal has
already attracted some 3,000 jobs from Boston-based State Street, New York City-based
Morgan Stanley and Paris-based BNP Paribas along with major AI players DeepMind,
Facebook and Google. Montreal houses one of the world’s top labs for AI research: The
MILA (Montreal Institute for Learning Algorithms) headed by Yoshua Bengio, one of the
founders of machine learning.

About Boyd

Founded in 1975, The Boyd Company, Inc., provides independent location counsel to
leading North American and overseas corporations. Devoted exclusively to corporate
mobility, Boyd is recognized as a leading authority in strategic site selection, both in and
out of the financial services industry. Boyd clients include: JP Morgan Chase, Visa
International, BNP Paribas, Discover Card, TD Canada Trust, Sun Life Financial, PNC
Bank, Boeing, GlaxoSmithKline, UPS, Pratt & Whitney, among others.

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Contact: The Boyd Company: contact@theboydcompany.com

The Boyd Company, Inc.

Location Consultants
Princeton, NJ 
 
 
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SUMMARY COST EXHIBITS FOR ALL 20 GLOBAL

BANKING BACK OFFICE LOCATIONS

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Location Consultants
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SERIES I
COMPARATIVE ANNUAL OPERATING COST SIMULATION SUMMARY(1)
Chicago New York San Francisco Jacksonville Boston Los Angeles
IL NY CA FL MA CA
Labor Costs
Weighted Average Annual Earnings $52,527 $56,663 $58,930 $44,650 $53,037 $52,753
Annual Base Payroll Costs $6,565,875 $7,082,875 $7,366,250 $5,581,250 $6,629,625 $6,594,125
Fringe Benefits $2,495,033 $2,691,493 $2,799,175 $2,120,875 $2,519,258 $2,505,768

Total Annual Labor Costs $9,060,908 $9,774,368 $10,165,425 $7,702,125 $9,148,883 $9,099,893

Electric Power Costs $81,540 $172,170 $154,440 $72,900 $152,460 $121,770

Office Rent Costs $793,200 $1,485,900 $1,459,800 $561,900 $1,178,100 $937,500

Amortization and Sales Tax Costs $1,733,875 $1,729,080 $1,727,750 $1,722,500 $1,719,875 $1,731,250
Corporate Travel Costs $116,810 $144,534 $140,585 $71,817 $134,514 $110,555

Total Annual Geographically-

Variable Operating Costs $11,786,333 $13,306,052 $13,648,000 $10,131,242 $12,333,832 $12,000,968

NOTES:
(1) Includes all major geographically-variable operating costs. All costs are in U.S. dollars.

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Location Consultants
Princeton, NJ 
 
 
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SERIES II
COMPARATIVE ANNUAL OPERATING COST SIMULATION SUMMARY(1)
Montreal Toronto Vancouver London Leeds Paris Madrid Dublin
QC ON BC UK UK FR ES IE
Labor Costs
Weighted Average Annual Earnings $34,649 $37,934 $36,874 $42,039 $39,203 $31,557 $26,235 $34,061
Annual Base Payroll Costs $4,331,154 $4,741,736 $4,609,199 $5,254,830 $4,900,338 $3,944,629 $3,279,375 $4,257,676
Fringe Benefits $1,169,412 $1,280,268 $1,244,484 $2,101,932 $1,960,135 $2,603,455 $1,311,750 $1,447,610
Total Annual Labor Costs $5,500,566 $6,022,004 $5,853,683 $7,356,762 $6,860,473 $6,548,084 $4,591,125 $5,705,286

Electric Power Costs $59,494 $96,099 $67,825 $123,192 $123,192 $93,006 $152,550 $135,650
Office Rent Costs $737,154 $792,413 $804,474 $2,203,078 $740,681 $1,510,579 $732,300 $599,617
Amortization and Sales Tax Costs $1,636,619 $1,630,173 $1,626,900 $1,500,063 $1,500,063 $1,510,314 $1,709,025 $1,511,706
Corporate Travel Costs $58,920 $65,795 $70,820 $108,316 $70,324 $91,826 $72,361 $71,828

Total Annual Geographically-

Variable Operating Costs $7,992,753 $8,606,484 $8,423,702 $11,291,411 $9,294,733 $9,753,809 $7,257,361 $8,024,087

NOTES:
(1) Includes all major geographically-variable operating costs. All costs are in U.S. dollars.

The Boyd Company, Inc.

Location Consultants
Princeton, NJ 
 
 
 10 
 

SERIES III
COMPARATIVE ANNUAL OPERATING COST SIMULATION SUMMARY(1)
Warsaw Geneva Brussels Frankfurt Amsterdam Milan
PL CH BE DE NL IT
Labor Costs
Weighted Average Annual Earnings $12,986 $38,841 $37,483 $36,412 $36,769 $36,204
Annual Base Payroll Costs $1,623,273 $4,855,100 $4,685,375 $4,551,500 $4,596,125 $4,525,500
Fringe Benefits $844,102 $2,233,346 $1,499,320 $1,274,420 $1,332,876 $1,538,670

Total Annual Labor Costs $2,467,375 $7,088,446 $6,184,695 $5,825,920 $5,929,001 $6,064,170

Electric Power Costs $83,198 $105,638 $151,502 $158,867 $155,711 $193,739

Office Rent Costs $687,053 $2,111,060 $1,025,280 $1,349,952 $1,110,720 $695,685

Amortization and Sales Tax Costs $1,456,984 $1,598,366 $1,435,140 $1,452,225 $1,383,885 $2,871,162
Corporate Travel Costs $43,810 $106,906 $81,023 $81,023 $96,604 $75,979

Total Annual Geographically-

Variable Operating Costs $4,738,420 $11,010,416 $8,877,640 $8,867,987 $8,675,921 $9,900,735

NOTES:
(1) Includes all major geographically-variable operating costs. All costs are in U.S. dollars.

The Boyd Company, Inc.

Location Consultants
Princeton, NJ