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Creative Destruction
Greg Wingfield could view the wave of recent layoffs as a blow to Richmond's financial sector. Instead, he sees it as an opportunity to build a stronger, more entrepreneurial economy.
by Peter Galuszka
Just when Greater Richmond was on a roll as a major financial center -- boasting a half-dozen companies surpassing the $1 billion-a-year in revenue mark and scores of middle-market firms -- the pendulum has come swinging back with a vengeance. The area stands to lose up to 3,000 financial services jobs due to a merger, the mortgage crisis and the general malaise in the money sector.
Yet what seems a setback could be a major opportunity, says Greg Wingfield, president of the Greater Richmond Partnership, Inc. With local financial sector leaders and the Chamber of Commerce, Wingfield is setting up an informal job bank to connect financial specialists with new jobs. Touting the deep base of expertise in the area, he’s unleashing a marketing campaign to lure new companies to the region.
“A lot of the people in the financial area want to stay here because they like the quality of life and have family ties,” says Wingfield. “We’re also making a marketing pitch to outside firms. If you want an area that has a pool of experienced employees hungry for work, here’s a way to reposition yourself when the market does turn.”
Sometimes bad news runs in spurts, and that seems to be what has happened to the Richmond region. The spate of gloomy headlines is coincidental: It does not reflect an underlying loss of regional competitiveness. Indeed, it can be seen as part of a natural process -- what Austrian economist Joseph Schumpeter called "creative destruction" -- in which an economy sheds the old to make way for the new.
In 2003, Wachovia Securities expanded its presence in downtown Richmond after merging with Prudential Securities, which brought with it 1,500 jobs from New York. But last spring, Wachovia announced it was acquiring the A.G. Edwards investment firm in St. Louis to expand its national footprint. As a condition of the deal, the brokerage had to move its headquarters to Missouri, affecting up to 2,000 jobs locally. Some employees, such as brokers with local relationships, will remain, but many will be laid off or asked to move to the St. Louis area. More than a few would rather not go.
The timing of the Wachovia deal could not have been worse, hitting just as the fallout from the sub-prime mortgage crisis burned anyone associated with the residential real estate sector. Land titling company LandAmerica is laying off 200 people, while mortgage-originator Saxon Mortgage will shed jobs, too. Bank of America is sloughing off 100 more positions in its mortgage operation, while another 100 are in jeopardy at the financial services subsidiary of retailer Circuit City. Capital One Financial, which has a huge presence in Greater Richmond, adds and drops jobs continuously.
The sub-prime fiasco has ravaged companies around the country. In October, the financial services sector announced 130,000 lost jobs, the largest monthly number ever, according to outplacement firm Challenger, Gray & Christmas. Huge housing lenders such as Countrywide Financial Corp. have been under fire and the heads of financial giants Citigroup and Merrill Lynch & Co. have been ousted.
Regrouping, Wingfield sees several business models for the financial service workers affected in the Richmond area. Some could go to work at regional brokerage houses such as Scott & Stringfellow or Davenport, or they could work at smaller boutique shops operating in the area. Or the Greater Richmond Partnership could recruit the back-office operations such as compliance, human resources or information technology of firms similar to Wachovia Securities.
Wachovia has hired New York-based outplacement consultant Lee Hecht Harrison. “We’re partnering with them and working with preparing for the transition,” says Cindy Woodruff, vice president of global project services at the company’s Atlanta office. “We’re assisting in identifying other opportunities.”
Marge Connelly, president of business development at Wachovia Securities and a former chair of the Greater Richmond Partnership, believes that targeting new financial companies makes sense because “having a talented labor pool is one of the most if not the most important factor when companies look to relocate.” At her firm, a number of people are reluctant to move to St. Louis even though the costs of living are a basic wash. Housing is more expensive in St. Louis but other costs are cheaper.
Nearly all Wachovia Securities personnel will be affected by the move except for its brokers, 200 in a services unit and another 200 people in an information technology unit.
“Some people really like the area here or have their kids in school at a critical time and are reluctant to move,” Connelly says. Richmond, she adds, “is a hugely marketable place for outside firms.”
Financial outfits already here are likely to benefit as well. Other Richmond companies are delighted by the chance to snatch up top talent during a period of chronically low unemployment. Wachovia's departure represents a growth opportunity.
“We’re hoping that the brain drain will be good for us,” says Walter Robertson, president and chief executive of Scott & Stringfellow, which will become the largest broker dealer in Richmond, with 1,000 employees and $350 million in assets. “We’ve already hired a few people. All in all, this is not good news for Richmond, but the good news is that we’ll be able to upgrade our labor force,” he says.
While Robertson praises the Greater Richmond Partnership’s initiative, he does see some problems. The people most affected are working in back-office jobs like tech support and compliance. “I’m not sure how you can tap all of those people and set up infrastructure in Richmond,” he says. Not many companies would be willing to go through the moving upheaval that Wachovia Securities plans, he adds.
Ironically, Robertson says, the sub-prime mortgage scandal may actually create more regulation that in turn will call for more compliance jobs that are a Richmond area specialty. U.S. Rep. Barney Frank, D-Mass., an outspoken populist and head of the powerful House Financial Services Committee, is proposing a raft of new legislation designed to make certain that companies don’t aggressively market mortgages on people ill-prepared to handle them.
Another factor that might help, says Connelly of Wachovia Securities, is that her company’s merger will take place gradually until about February 2009. By that time, the financial sector nationally might well bounce back. “It’s still a great time to be in financial services. You have all the baby boomers getting ready to retire with their 401(k)s. Someone needs to handle all of that,” she says.
Another sector that Wingfield thinks could gain traction is real estate. Wachovia Securities has several hundred thousand square feet under lease near the James River in downtown Richmond. Some of that would be available to other financial firms, plus additional space might be available in the West Broad Street area near Innsbrook in Henrico County.
Greater Richmond has see-sawed in terms of its position as a financial center. Since 1914, Richmond has hosted a regional branch of the Federal Reserve. Until the 1990s, it was headquarters for large regional banks, including Dominion Bankshares, Signet and Central Fidelity. A wave of bank mergers cut down on the number. North Carolina’s legislature, which liberalized that state’s banking rules, sparked an exodus of newly merged banks to Charlotte, N.C., making it the second-largest banking center in the U.S.
Yet Richmond bounced back from the North Carolina invasion when Wachovia Securities moved its headquarters in 2003, making the Virginia capital home to the nation’s third-largest securities operation. One reason Wachovia located here was a tie created in 1998 when it merged with Wheat First Butcher Singer, a venerable Richmond investment house. The Richmond region also is home to numerous mid-market investment banking firms as well as prominent insurance companies such as Genworth Financial, Markel Corporation, Anthem and Hilb, Rogal and Hobbs.
Given the critical mass of talent in the area, Wingfield hopes that his labor pool idea will help Richmond rebound once more. The initiative will continue into January and February when it will be re-evaluated. The point, he adds “is to be proactive and make note of the Richmond area’s strong advantages.” -- December 13, 2007
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Greg Wingfield
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