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Financial services likely not our destiny

An economic development group in Seattle has released a report estimating the size of the financial-services (banking, insurance, investments, accounting, finance) sector in Washington, as the basis for encouraging the growth of a cluster of companies in that industry.

Whatever the long-term goals, the report has in the short run sparked increased productivity of a commodity in which this column specializes: The thinking of churlish thoughts.

Churlish Thought No. 1: The study, conducted by Community Attributes International and commissioned by enterpriseSeattle, estimates statewide direct revenue from financial services at $26.9 billion in 2010 – a big number, but by itself meaningless.

A far more telling number would be how much the financial-services sector has drained from this state’s economy in the past five years. Washington Mutual alone, through the loss of thousands of jobs and the evaporation of billions in shareholder wealth, accounts for a huge vacuuming of dollars. That’s not including the losses from the other bank failures here, or what Washington taxpayers are shelling out to bail out Fannie, Freddie, AIG and other wards of the federal government.

To be fair, the report’s authors did quantify the sector’s contribution to the recession in terms of jobs: a 10 percent cumulative loss over five years (and they do mention the WaMu debacle as a “challenge” to the local sector). Overall employment actually eked out a slight increase in that period, which means that other sectors were making up for the damage done by financial services. Thanks, guys.

Churlish Thought No. 2: The study’s sponsors see it as a starting point to assisting and building a financial-services cluster, both for itself and for the support it can give other Washington industries (such as venture capital for technology).

Fellow thinkers of churlish thoughts will read the ideas being kicked around and say, “My, doesn’t this sound familiar. Did they do a find-and-replace with the word ‘Seattle’ every time they encountered ‘Tacoma’ in some old reports?”

Not so long ago, Tacoma was to be the locus of a financial services cluster, leveraging the state’s one truly significant national player in the sector – Russell – along with two publicly traded regional banking chains (Columbia and Rainier Pacific).

But then WaMu went down, its real estate became available at screaming-deal prices to a company looking for a reason to go to the big city, Rainier Pacific failed and there went Tacoma’s vision of being a center of capital. As fine an institution as Columbia might be, and certainly it gets points just for surviving, it’s not what you would base aspirations of global financial significance on.

Tacoma’s ambitions might have been a reach even if it had not been caught standing at the end of that row of dominoes. Is Seattle any better positioned?

Maybe not. Seattle’s inventory of locally based publicly traded banks is equal to Tacoma’s – one (Columbia and WaFed), although Seattle’s count will double if the recently filed IPO for HomeStreet goes through. One could argue that in consumer financial services, now that WaMu is gone, the state’s most significant and locally based player is BECU – with its headquarters in the global financial center of Tukwila.

Seattle was never a big deal in insurance. It’s more so in venture capital, although the region feels overshadowed by the Bay Area.

These days, even New York is feeling a bit uneasy about its status as a world financial center, given the dispersal of economic power around the globe. It may be the best the Seattle area can hope for is a financial-services sector that grows itself and helps other industries prosper – or, failing that, one that isn’t shrinking and taking jobs and money along with it.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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