Special Report

TARGET: BUSINESS

The impact on the finacial community was as much emotional as econimic

KATHERINE MACKLEM September 24 2001
Special Report

TARGET: BUSINESS

The impact on the finacial community was as much emotional as econimic

KATHERINE MACKLEM September 24 2001

TARGET: BUSINESS

The impact on the finacial community was as much emotional as econimic

KATHERINE MACKLEM

Tim O’Neill was attending a conference in the ballroom of the Marriott World Trade Center Hotel, which sits adjacent to the twin towers, when the first plane hit the north tower of the complex. The room shook “like a minor earthquake,” recalls the chief economist of the Bank of Montreal. There was no noise, aside from the tinkling of the chandeliers. “Only once we were outside,” he says, “did we realize there’d been an explosion.” With colleagues, he walked towards the East River. They were close to the waterfront when they heard the second plane’s approach. “I looked up and watched as a large jet plane plowed into the side of the second tower,” O’Neill says. “It was shocking, astounding, unreal—all the adjectives you could imagine to use to describe the unimaginable.”

The attacks on the World Trade Center, symbol of Wall Street and a once tall and mighty tribute to U.S. capitalism, continue to reverberate through the financial services industry. While the buildings and some businesses have been destroyed, the community—the brokers and bankers, their lawyers and consultants—is reeling from the realization that it, along with the political and military establishment, was a target. This is an industry of cocksure egos—these are the big-bucks boys who roll the dice and play the markets. Sometimes they win; sometimes they lose. But until last week, what they lost was money, not lives. The game they played was nonviolent and, for the most part, clean. But the explosions rocked, both literally and figuratively, the foundations of their domain. “It makes you look at the world in a different way,” says Toronto native Don Newman, a 2 5-year-old financial analyst with Goldman Sachs, who saw the attack from his 45th-floor office window 10 blocks south of the towers. “Right now,

working and making money do not seem so important. It really doesn’t matter when people are buried under rubble.”

It will be tough to assess the true impact of the attacks on business, on the world of finance, on the economy. How to calculate the cost of terror? Of confidence shaken? Alongside the human toll, what’s the price to be paid for the suffering and sadness that has struck the financial community, and beyond? “It has a very broad impact,” says Tony Comper, chairman of the Bank of Montreal. “It’s an unbelievable tragedy. Although we talk about markets, the financial services industry is really about people dealing with people.” His first job as a leader, he says, is to support his staff, many of whom have lost friends and colleagues. A BMO Nesbitt Burns managing director, David Barkway, was visiting clients in the World Trade Center when it was hit, and was unaccounted for last week. Colleagues in Toronto were shaken, as he had messaged them from a wireless device that the building had been hit. It was serious, and he needed help, he wrote. A reply e-mail went unanswered. “The tragedy in the United States hit us right at home,” Comper says. “This didn’t happen in our neighbour’s backyard— this happened in ours.”

When the south tower came down, O’Neill was close enough that he was showered with soot and ash, although other buildings blocked his view of the collapse. “It was like seeing the fog in St. Johns roll in,” says O’Neill, “but it was thick smoke, enveloping us.” He was with a group of about a dozen people from the

conference, including some foreign students whose passports had been left behind in the hotel, and they were now walking, alongside thousands of others, away from the devastation of the trade centre. Then the north tower imploded. The smoke was acrid, thick and persistent, he says. “I could taste it.”

Over the short term, experts say, the hit to the real estate market in New York will be immediate and very direct. The destruction of the World Trade Center complex wiped out more than 15 million square feet of office space—about 15 per cent of all the space in lower Manhattan and a litde more than is found in all the principal office towers of Toronto’s financial district put together. It created “a crunch for space that is beyond comprehension,” says real estate executive Blake Hutcheson. The day following the attacks, corporations housed in both the trade centre and nearby buildings were already scouting for new accommodation. Among offices damaged and evacuated were three towers of the adjacent World Financial Center along with One Liberty Plaza, all owned by Toronto-based Brookfield Properties Corp. Manhattan rents are due to skyrocket, with the ripple effects reaching far into New Jersey and Connecticut. “There’s a supply deficit the likes of which we haven’t seen on that island,” says Hutcheson, president of Toronto-based CB Richard Ellis Ltd. “There’s going to be a frenzy.”

Over the longer term, a different kind of location question arises. The attack on the twin towers will force people to think twice about occupying the best real estate, Hutcheson says. “It makes you wonder how many major institutions are going to want to own trophy assets,” he says, “if those trophy assets become the target.”

The tenant at the top of the north tower was privately owned Cantor Fitzgerald LP, the dominant bond broker in the U.S. which handled up to 75 per cent of all trading in long-term Treasuries. Of its 1,500 people worldwide, 1,000 worked in its World Trade Center headquarters. Roughly 700 had not been accounted for by the end of last week. In a moving television interview, the company’s chairman and CEO, Howard Lutnick, said amid tears that his traditionally close-knit company would now dedicate itself to

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supporting “the 700 families” left behind. Lutnick, who had left for the office late that morning, set up a crisis operation in New Yorks Pierre hotel and posted his home phone number on the company’s disaster Web site. Distraught wives had called him fearing they wouldn’t be able to cover their mortgages, he said. “It’s a different kind of drive,” he said of his new business motivation. “I just have to help them.”

The loss of the expertise of the Cantor Fitzgerald people will have an effect on how the bond market trades over the next six months, predicts veteran Toronto-based trader Ted Norris. Flundreds of millions of dollars of trade setdements will be difficult to make because the paper trail has been lost and the people are gone, he says. “But the bond market isn’t going to fall out of bed because a dealer went under,” he says. “It’s just going to be a messy thing trying to clean up all the settlements.”

The disruption in business reaches far beyond, of course. Other firms have lost

UGLY NUMBERS

It’s far too early to count the dollar cost of the U.S. terror tragedy. But some numbers, hard and soft, were out there last week (in U.S. dollars):

$40 BILLION: Congress-approved budget for rebuilding and retaliation $20 BILLION to $30 BILLION: possible total exposure of global insurance companies $10 BILLION: estimated airline shutdown losses

$3.2 BILLION: value of recent 99-year lease on north and south towers of the World Trade Center and two smaller buildings $2 BILLION: possible life insurance claims $1.5 BILLION: insured value of the World Trade Center towers $330 MILLION: replacement cost (new) of the four downed airliners

huge swaths of their staff, which will make rebuilding close to impossible. While the financial firms have back-up computer systems and other equipment at far-off sites as part of their emergency programs, for some, it won’t be enough. “In your disaster recovery,” one trader says, “you never plan that all your employees are dead.”

For companies that can rebuild, or ones caught by the halt in normal business,

what ☺is the cost of delay? What is the price of uncertainty and a drastic change in reality? Airlines and hoteliers took a severe hit in their stock prices when the Toronto Stock Exchange re-opened for trading on Thursday. The real estate and construction sectors rose. In the hours following the attacks, gold prices predictably shot up, although they came back down slightly later. Exporters, such as automakers, were hurt by delays at the border. Manulife Financial Corp., one of Canada’s largest insurance companies, said the terrorist attacks could cost it as much as $ 100 million in claims. Corporate financing was at the very least put on hold. Sun Life Financial Services of Canada Inc., another big life insurance company, postponed a marketing roadshow for a $500-million equity offering. Too many such delays could help drag down the economy, says investment banker Stanley Hartt, chairman of Salomon Smith Barney Canada Inc. “You could throw this quarter into negative growth.”

The U.S. economy had already been teetering on the edge of a recession—and economists say the attacks may be its final push over the edge. Consumer spending had been the key prop, and people who are grieving, or who are fearful amid a crisis, do not go out and buy new refrigerators or cars. “You’ve got two issues—consumer confidence, and the financial system crawling back out of the rubble,” says Hartt.

Yet within days of the tragedy, business activity had begun to pick up again. To offset a potential liquidity crisis, central banks around the world injected $180

billion into the marketplace. When the TSE reopened, trading was calm, not panicked, as some had worried. Even so, the market closed on Friday down fully six per cent since the attacks, and the big test was due this week when the New York Stock Exchange was set to reopen. Interest rates are expected to come down even further in efforts to bolster the economy. The New York Stock Exchange was scheduled to reopen this week.

In the days following the attacks, an ethical debate ensued. On one side was the view that the show must go on—that not opening up for business would allow terrorists to believe they’d won. On the other was the fear of showing disrespect, that a quick resumption in trading and other business activity was unseemly when so many lives were still unaccounted for. “We were livid,” says one trader of the Toronto Stock Exchange’s decision to remain open for an hour following the attacks on Tuesday morning. “It was wrong.” Still, a consensus seemed to emerge that business needs to resume some form of normalcy—the debate was really over timing. “You can’t let something like this keep you captive,” says Newman of Goldman Sachs. “Oh, you will remember it forever. But you have to keep living your life.”

When the tragedy struck, O’Neill had been listening to a presentation on the future of financial services. It was unimaginable to him—or anyone there—how that very future would be the terrorists’ target.

With Sharon Doyle Driedger in Toronto

Sharon Doyle Driedger