In the 1990s, Swiss Bank was lured to Stamford from New York City with a $165 million incentive package from the state - an unheard-of coup that later showed that sophisticated investment banking could function outside of Manhattan.
The deal with Swiss Bank - which later morphed through a series of mergers into international banking giant UBS AG - encouraged other financial services companies to bring investment banking to Stamford and also helped the rise of the area's lucrative hedge fund industry.
UBS has quietly downsized its Stamford presence over the past few years. Now the company might move many more high-paying jobs back to New York City, possibly to one of the new towers planned for the World Trade Center site.
That could threaten the momentum that has led to the Royal Bank of Scotland's also establishing major investment banking and trading operations in Stamford.
So why would the global financial services company consider such a move?
Experts cite several reasons, some specific to UBS, others general industry trends, as Wall Street banks are once again looking at competing for the best talent. In the wake of the financial crisis, banks are consolidating offices and reuniting employees who might have been separated during aggressive expansions in the past two decades.
UBS won't discuss its plans, other than to say it frequently evaluates its space needs as leases expire or as new space comes on the market.
The outcome will be critical for Connecticut as it not only struggles to hold onto high-paying jobs that support the economy and the tax rolls, but also to expand such employment as the state digs itself out of recession. Financial services jobs in Fairfield County are crucial to the prosperity of the entire state.
The result will provide a major test for Gov. Dannel P. Malloy, who presided over the UBS expansion as mayor of Stamford.
Like other banking giants, UBS was hit hard by the financial services crisis. But the troubles have run even deeper at UBS as it has struggled with whether it should remain in investment banking. Although UBS executives say they are committed to the business, a parade of investment bankers have left amid concerns about UBS being able to take on the big deals.
Even as the bank has been rocked internally, few expect UBS to leave Stamford entirely. Economic development officials in the state say the bank has told them that is not its intention. Still, no long-term decisions have been made.
UBS employed about 3,200 in Connecticut at the end of last year, according to the state Department of Economic and Community Development, but that was down from 3,500 in 2009. It still occupies about 1 million square feet of space in downtown Stamford, according to industry estimates, but that, too, is diminished.
The banking company's trading floor in Stamford is impressive, the size of two football fields and the largest of its kind when expanded in 2002.
There is, however, plenty to lure UBS back to New York, where the banking giant also maintains hefty investment banking operations.
"Coming back to Manhattan, economically, it might be more feasible to put 'X' amount of employees together in one space," said Christopher Okada, founder of Okada & Co., a commercial real estate brokerage in midtown Manhattan.
Okada and others say there is also the attraction of centralizing investment banking closer to Wall Street, the nexus of corporate deal-making.
Another sweetener is the pool of potential employees, many of them young professionals in their 20s and 30s.
A move back to the city for UBS, said Dennis J. Donovan, a principal at relocation consultancy Wadley Donovan Gutshaw Consulting in Bridgewater, N.J., "would be for the purpose of being at the epicenter of one of the best labor markets for investment banking."
Last week, Bloomberg News reported that UBS was in talks with the developer of 3 World Trade Center to anchor the 71-story, 2.1-million-square-foot skyscraper, with a lease of 800,000 square feet. UBS could move into the tower by 2015.
While the rents at the trade center would certainly be higher than the average asking rent of $36 a square foot in Stamford, the downtown Manhattan financial district office market is still weak.
That has set the stage for aggressively priced deals to fill space, even new construction at the trade center, according to Greg David, director of business and economic reporting at the graduate school of journalism at the City University of New York.
"The rents at the World Trade Center, there are unbelievable deals for this space," David said. "It's incredibly cheap for this type of space. And there are big tax breaks."
For instance, Conde Nast, publisher of Vogue and The New Yorker, recently signed a deal to lease 1 million square feet at 1 World Trade Center at $60 a square foot, but, according to published reports, that was before incentives of $5 a foot for the first 750,000 square feet.
Even if UBS didn't lease space at the trade center, average asking rents elsewhere in downtown Manhattan were about the same as in Stamford - $36 a square foot - as of the end of March, according to Newmark Knight Frank, a commercial real estate services firm.
The prospect of a shift back to New York has local and state officials in Connecticut on alert.
"As part of our discussions with the company, we have made very clear the state's commitment to seeing UBS maintain and grow its operations in the state and ensuring our financial services sector maintains its competitive edge," said Catherine Smith, the state's economic development commissioner.
Joseph McGee, vice president of public policy for the Business Council of Fairfield County, said the situation has raised serious concerns.
"We have been talking to them since December," McGee said. "Everything is on the table, and that includes Stamford."
'NOT THE END OF THE WORLD'
McGee was instrumental in bringing Swiss Bank to Stamford in 1994 when he was the state's economic development commissioner under then-Gov. Lowell P. Weicker Jr.
The incentive deal that brought the banking giant to Connecticut rested heavily on making the company eligible for tax credits of up to 50 percent of its corporation tax for 10 years. The agreement, however, stipulated, among other things, that UBS must employ an average of 2,000 employees during a year in which it claimed a credit.
A year later, the legislature amended the deal to allow a minimum of 1,200 employees and a tax credit of 30 percent, after the company suffered a drop in profits.
It was unclear late Monday to what extent the bank tapped into those benefits.
In 2001, the incentive deal was altered by the legislature and the original terms were scrapped, according to the state economic development department. It was replaced by a new package that included a $66 million interest-free loan through the economic development department. Of that total, $20 million was never allocated because the construction of a third tower never took place. The offer for those remaining funds expired Feb. 15.
"Swiss Bank was part of a broader strategy to introduce investment banking into Connecticut's financial services industry," McGee said. "It started with small companies. The Swiss Bank deal had an enormous transformational effect."
McGee said there are clear reasons to believe that Stamford will remain a critical location for UBS, given that it has invested millions of dollars in designing and installing power systems that would make the trading floor a "backup" location for other UBS offices, including those in New York City.
Even so, the state might again be faced with the thorny question of whether it should offer UBS incentives to maintain a significant presence in Connecticut, especially if negotiations over incentives in Manhattan heat up.
"Certainly a conversation about incentives would be worth it," McGee said. "For us, we have to be smart and prepared and talking to the company."
Stamford has suffered the loss of major corporate presences before, including telephone giant GTE and later, International Paper.
The prospect of losing a chunk of UBS is unsettling, but the legacy of what the company has done for financial services in Connecticut will remain, McGee said.
"It's disappointing," McGee said, "but it's not the end of the world."
Reprinted with permission of the Hartford Courant.
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