Around 1996, when I was the business editor of the Charlotte Observer, I provoked the ire of the president of the chamber of commerce -- as I so often do with such caudillos -- by pointing out an inconvenient truth: the city's economy was too dependent on two big banks. Charlotte was in the middle of a historic boom that turned a sleepy, mid-sized Southern city into the nation's second-largest banking center.
An Oz-like skyline shoots up dramatically from the flat treeline of the Carolina Piedmont. Signs of fabulous wealth are everywhere, from the expensive cars on the street to the beautiful people shopping at Dean & Deluca. It's an amazing testmony to what money can do -- to what being positioned at the heart of the capital markets can do. And it's mostly because of the two money center banks, what are now Bank of America and Wachovia, that are improbably headquartered there.
Then came the subprime and credit crises, partly authored by the smartest people in the room in Charlotte. Now, as the Wall Street Journal put it, "Charlotte is fretting over whether it can remain the last great U.S. banking center outside of New York." It should be fretting over more than that.
The immediate cause of concern is Wachovia, which ousted CEO Ken Thompson after being forced to write down $3.5 billion in bad loans. The bank, the former First Union, bought a major subprime lender even when it was clear the housing bubble was popping. Now, well-paid Charlotte bankers are losing their jobs and it's an open question whether Wachovia will be sold. On the other side of downtown, Bank of America is facing its own mess, but is in a stronger position to weather it -- maybe. In buying Countrywide, one might ask: what are they thinking?
Such is the price of imperial CEO hubris, I suppose. Yet both Ken Thompson and BofA's Ken Lewis were the bland technocrats brought in to replace the swashbucklers that built two smallish Southern banks into international giants: Ed Crutchfield at First Union and Hugh McColl at Bank of America. The dive into subprime lending was likely the result of committees of committees, with Ivy League MBAs assuring the bosses "the numbers worked." I wonder if the swashbucklers would have made the same bonehead mistakes. I know McColl was always suspicious of the mortgage business, even before the advent of liar loans and subprime.
Now comes the pop quiz that every city fears. If Wachovia is sold and its headquarters lost, what happens in Charlotte? How has the city used its salad days to prepare for lean ones? It did create a largely viable central city served by light rail -- pushed by the banks, especially McColl, who came to appreciate quality urbanism. The visionary gateway complex showed that a back-office center generally consigned to the beltway, works better downtown. This will be more important as gas prices and global warming make Southern suburbia much less appealing. But how much did the economy diversify? Is there enough banking infrastructure that not even Jamie Dimon can play General Sherman to Charlotte's Atlanta?
Much is at stake: good, high-paid jobs, the ability to attract talent and capital, deep philanthropy (especially for the South), the prosperity to continue enhancing amenities and quality of life, and critical civic leadership. The large, concentrated workforces of the banks make downtown Charlotte thrive, and helped the city avoid what will become the debilitating state of American metro areas offering only sprawl "office parks" reachable only by automobile.
I know this much: it matters where the CEO lives and Charlotte's CEOs cared about the city, in McColl's case passionately, personally. Ironically, Charlotte banks devastated many another town by acquiring their banks and gutting the local executive leadership. Will smug Charlotte get some of its own back?
From an economic and public policy perspective (now, don't fall asleep), the last thing we need is more banking consolidation. It means less competition, less strength and soundness, more "financial services" group think, more giants whose troubles can threaten the entire financial system.
But there will be another part of the pop quiz that may be even more revealing. The capital markets will be remade by this crisis, and no one knows the shape they will assume. Wall Street is hurting and some are wondering if it could lose its place as the center of the financial world. Hedge funds, sovereign wealth funds and globalization of capital make a very different environment than the one that created Charlotte's Oz.
Charlotte has attracted smart people and vast pools of capital, so it may be in a fine position to master the art that makes great cities: continuous reinvention. It will matter because cities are the economic players of the future and the competition is global.
But nothing is ever certain in a city's life. Buffalo was once a large city and economic powerhouse. Rochester was so prosperous that an author wrote a book about its smugness. For that matter, drive up the highway to Winston-Salem, with its stately grand empty downtown. Their moments passed.
And don't kid yourself about "the weather." Global warming's consequences for the American South, in everything from temperatures to tropical diseases, could make a lake-effect blizzard seem like a blessing.
Comments