OPINION - Why are London-listed companies upping sticks to New York?

Reforms to the City

For centuries, men, women and children have fled the European continent in search of a better life in the new world. Today, major companies are increasingly making that same journey, keen on securing better returns for their shareholders.

And as our Financial Editor Simon English reports, City analysts are now sounding the alarm. First, because new flotations have all but collapsed: these raised £12 billion on the London Stock Exchange (LSE) in 2021, but that fell to £338 million in 2022 and so far this year the figure is a paltry £18.5 million. Second, because small investors have withdrawn £25 billion from the stock market in the last two years alone.

But it is the capital flight where this comes to a head. Paddy Power owner Flutter is only a recent example of big-name London listed companies moving their stock listing to the US. There are even whispers that a corporate giant on the scale of Shell could leave, which would turn something of a stock market torpor into a full-blown crisis.

The reason for moving is pretty straightforward – things are simply so much more lucrative in America, where comparable companies enjoy vastly higher valuations. Consequently, even chief executives content to stay in the capital are facing growing shareholder pressure to make the switch.

The obvious question is: why? What are the magical properties of being based in New York that make similar companies so much more valuable? It isn’t simply that the US economy is booming while Britain lurches somewhere between recession and stagnation. Historically, the FTSE 100 has performed well, independently of wider macroeconomic conditions. Though over the last five years, the FTSE 100 is up seven per cent, while the Dow Jones is up 54 per cent. Which is more.

Brexit has not helped. Some US investors have been spooked by the turmoil of the last few years (though the health of their political system is not exactly robust). Meanwhile, companies with a significant EU presence are looking to European indices, though they too face the same problem of a buoyant NYSE.

Ultimately, this is curiously a British disease. The remarkable fact is that the total ownership of UK quoted equities by insurance and pension funds has fallen dramatically, from 45.7 per cent in 1997 to 4.2 per cent in 2022 – the lowest level ever recorded. The rest of the world, not least Americans with their free coffee refills and roadside attractions, quite reasonably ask themselves: if British institutions won’t invest in Britain, why should we?

The government recognises this is a problem, hence the announcement of a British ISA, to allow retail investors to invest an additional £5,000 tax-free into UK equities on top of the current £20,000 annual allowance. But no one thinks this will move the needle much.

What needs to happen (Simon tells me and I believe him) is institutional investors ought to jump back on the UK equities train. The difficulty is that may require a relaxation in the strict pension fund rules (which are strict for a reason) to encourage them to take a longer term view (i.e. a bit more risk).

Does any of this matter? While the LSE is perhaps the most visible bit of the City, it isn’t everything. There’s the insurance market, bond market and so on. The real problem may come if and when a very large company decides to up sticks to New York and takes with it not only its London listing, but all the business it does in the City, with insurers, lawyers, bankers etc. That is what turns a stock market oddity into a decent-sized economic crisis.

After all this, I can’t get these last two lines of Simon & Garfunkel’s 1968 masterpiece, ‘America’, out of my head.

Counting the cars on the New Jersey TurnpikeThey’ve all come to look for America

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