The South Tops Wall Street
Why financial activities firms are making a beeline
to southern states
By Jennifer LeClaire and Trisha Ostrowski
It was the last hurdle, the final frontier. As of 1996, the
American South topped the Northeast, Midwest, and West in
every Gross Regional Product category but one. The only category
where the South did not outperform all other U.S. regions
was the FIRE sector (finances, insurance, and real estate).
Then in the year 2000, the South overtook the final category.
Once dominated by the Northeast, the South posted a FIRE
gross regional product of more than $250 billion in 2000.
That's $2 billion more than the Northeast's total.
"Is the South's dominance a function of wealth moving
into southern states? Is it because better jobs are being
created? Is it because the education system is getting better?
Or could it be the lower cost of living?" asks Joe Hollingsworth,
Jr., author of The Southern Advantage and chief executive
of the Hollingsworth Companies, a Clinton, Tenn.-based industrial
construction and real estate firm. "I believe it is a
combination of all those things." With the advent of
NAICS coding, the FIRE sector is now known as "financial
A convoy to the South
Something is undoubtedly bringing folks from the North, East
and West to the southern states. The U.S. Census Bureau reports
an increase of nearly 15 million people in the south since
1990. That's 5 million more than western states and far and
beyond any other region. Of the 100 fastest-growing counties
with 10,000 or more residents, 63 are in the South. And Texas
is now the second largest state in the union. As Hollingsworth
noted, populations have been gradually migrating from the
other parts of the country - and other parts of the world
- to the South because the cost of living is about 91 percent
of the national average and the quality of life is often higher.
How does this relate to the booming financial activities
sector? In several ways: more people mean more housing, more
schools - and more banks. "As the population shifts south,
we will see banking activity shift with it because banks will
follow their customers," reasons Bennet Koren, an attorney
with New Orleans-based law firm McGlinchey Stafford, which
represents some of the largest banks in the South. "We
should see more banks continue to locate their corporate headquarters
in the South, along with mortgage companies."
Observers note that the population shift has brought more
affluent people to the Southeast. Perhaps that accounts for
the healthy growth that Michael Kennedy, senior client partner
in the Atlanta office of Korn/Ferry International, an executive
recruitment firm, is seeing in the wealth management sector.
"Financial services firms are placing more of an emphasis
on building wealth management teams of professionals to tap
into all the individual wealth that has migrated to or been
created in the south," Kennedy says. "And it's not
just Southeast-based firms like SunTrust and Wachovia. Northern-based
firms like Citigroup are also coming to the south to build
out private client services groups."
The South now leads the nation in financial activities employment.
Financial Activities Employment by Region (in thousands)
Source: U.S. Bureau of Labor Statistics; 2002 figures
Just as the cost of living is attractive, the cost of doing
business is also drawing financial activities companies to
the South. The region has a long-standing reputation for its
business-friendly climate. Experts say the tax structure is
often less rigid and the regulatory regime is not as comprehensive
as many other states.
Charlotte's banking-friendly laws played a key role in wooing
Bank of America, the largest bank in the country, and Wachovia
Corporation, the fourth-largest, to the region. Their presence
has spawned a growing financial services industry cluster,
with 253 companies employing 60,000 professionals. In fact,
Charlotte is now the second largest financial center in the
U.S. Only New York holds more financial assets than Charlotte
(over $1 trillion).
"We are building on the core competency that financial
services organizations have created here," says Kenny
McDonald, vice president of economic development for the Charlotte
Regional Partnership. "The booming financial services
sector has allowed information technology firms to flourish
here and now we are beginning to see opportunities in bioinformatics.
The skilled talent that Charlotte has attracted to work in
the banking industry is transferable to other industries outside
the financial services world."
Further south, Birmingham's pro-business environment has
attracted financial industry players like Region's, Compass
and Amsouth banks. And Region's recent merger with Union Planters
is bringing some of Union Planter's top management to the
area. Birmingham employs more than 12,000 people in the financial
activities sector, according to Chad Newell, executive vice
president of the Metropolitan Development Board in Birmingham.
"We have an excellent tax structure, a quality work force,
pro-business government and private sector leaders that encourage
growth in the region," he notes. "We have 72,000
college students within a one hour radius. That's a substantial
future talent base to pull from."
Richmond is also becoming an established financial center
and a natural choice for financial services companies. Greater
Richmond is the largest financial center in Virginia, in part
due to the location of the 5th Federal Reserve Bank in its
downtown. The community's position as a financial services
up-and-comer was solidified in December 2003 when Wachovia
Securities announced that it would expand in Richmond, adding
an additional 1,000 jobs. Even before Wachovia's news, Richmond
was already posting big employment numbers from some of the
nation's best firms. Capital One Financial Corp. employs more
than 9,000 there and Sun Trust Banks employs nearly 4,000.
Genworth Financial (formerly known as GE Financial) and several
large insurance companies also call Richmond "home."
Location, location, location
Location is another determining factor in favor of the South.
With hubs like Atlanta (Hartsfield International Airport is
the busiest airport in the world) financial customers and
clients can come and go with ease. That is one reason why
the Federal Reserve Bank houses its southeast regional headquarters
there, along with Fortune 500 SunTrust bank. While Wachovia's
northern headquarters are secure in Charlotte, the bank's
southern headquarters will be located in Atlanta after the
acquisition of Alabama-based SouthTrust is completed. Washington
Mutual, RBC Centura and BB&T Corporation are also operating
in the Atlanta market. That makes Atlanta the banking capital
in the Southeast, with deposits totaling over $82 billion
"You have to look at the movement of deposits as a growth
factor," says Deloitte Consulting principal Patrick Bechdol.
"These institutions are fundamentally deposit chasing
institutions and as the population gets older and moves towards
climates and locations where people will spend the balance
of their lives, we will see those institutions continue to
move with their customers."
Coupled with transportation is technology. The South now
has a technology and communications infrastructure that competes
with the rest of the U.S. "With improved communications
across the country, it really doesn't matter where you locate,"
says Bob Goforth, an economic development consultant who has
focused on the South for nearly 50 years. "In the metropolitan
areas of the south, communications are just as good as they
are anywhere. Combine that with lower costs of doing business
and it only makes sense to move operations to the South and
rely on technology to transfer communications and data long-distance."
The work force
When it comes to education levels, the South is on course
to surpass all other regions, according to Hollingsworth's
research. In 2001, the national high school graduation rate
was 84.1 percent. Now, less than two points behind is the
South's high school graduation rate of 82.2 percent. The figure
represents nearly a three-point gain on the national high
school graduation average in 10 years.
Mirroring the increase in high school educational attainment
in the South is the rise in the number of Southerners who
hold college degrees of four years or more. The current U.S.
average is 25.6 percent. The current average in the South
of residents with four-year degrees or more is 23 percent,
or a scant 2.6 percent difference from the U.S. average. This
rise in college-educated Southerners has produced a large
base of independent thinkers and innovators.
"My prediction is that we are going to lead the educational
revolution," Hollingsworth says. "Then how is the
rest of the country going to think when the South starts getting
ranked as the highest educational area? We are only about
five or six years away from that. The education factor is
helping draw more companies in various industries. It is a
self-fulfilling prophecy. If you believe that you can attract
financial activities companies to the South and you build
that momentum with each company, that momentum will begin
to bring you notoriety and all of the sudden financial services
firms begin to see the South as a natural selection."
Sterling National Mortgage, a subsidiary of New York-based
Sterling Bancorp, expanded in Charlotte two years ago and
Kreg Groat, vice president of the subsidiary, says he couldn't
be happier with the work force there. The company employs
50 people now and will add another 15 in the next month. "The
southeastern U.S. has a large talent pool of qualified banking
professionals," he says. "With its financial services,
mortgage brokerages and bank headquarters, Charlotte presents
a fantastic opportunity to employers. We've got an education
system here that provides plenty of smart, talented young
professionals looking for employment. It's certainly helped
our business. We don't find ourselves relocating a lot of
people to this region."
Financial Activities Employment in Southern States
Washington, D.C. 31,000
North Carolina 189,000
South Carolina 90,000
West Virginia 31,000
Source: U.S. Bureau of Labor Statistics; 2002 figures rounded
to nearest 1,000
An undeniable factor in the Southern financial business boom
are the mergers and acquisitions that continue to make headlines
in a consolidating banking industry. The 1990s saw a wave
of mergers that have reduced the number of banks by 5 percent
each year and the South has come up big. "Banking leaders,
their aggressive acquisition strategies and their ultimate
decisions to place post-merger headquarters in the South has
seen activity increase in southern states," says Deloitte's
Bechdol. "There are a number of big transactions left
to do over the next 18 months and that could change the scene."
With so many financial activities companies displaced in
the wake of 9-11, could the South be benefiting from firms
that are seeking to spread the risk? Though it's difficult
to quantify, industry insiders do not rule out the possibility.
"We may be experiencing a dispersion of certain activities
following September 11," says Goforth. "Businesses
that were concentrated in lower Manhattan are now scattered
in different locations."
Then there is the "who you know" factor. Rusty
Benton, founder and chief executive of WealthTrust, Inc.,
a Nashville-based financial advisor, has acquired eight affiliates
across the South. Benton says beyond all the obvious advantages
for financial activities companies, the South offers an intangible
benefit to its own. "The South has a 'who you know' element
to doing business," he reveals. "There's a network
of Southerners who know each other. It's almost like doing
business in a small town. I haven't seen that in other parts
of the country where we have looked to acquire firms."
The future is bright
With so much to gain and so little to lose, experts predict
financial activities companies will continue to establish
a presence in the South - and that growth will begin to spread
beyond the typical clusters found in Charlotte, Atlanta and
"Firms will begin looking more for mid-sized, southeastern
cities, like Nashville and Birmingham," Kennedy predicts.
"With good business climates, livable communities, low
cost of living and great universities, there is a growing
interest from northeastern companies."
Hans Gant, senior vice president of economic development
with the Metro Atlanta Chamber of Commerce, reminds that the
South is the fastest growing region in the U.S. "If you
look at what the economic forecasters are saying, the South
will continue to be the fastest growing region in the country,"
he says. "As the South grows the financial industry will
continue to grow here."