Towns That Could Be Hit Hardest by the Financial Crisis

The upheaval shaking Wall Street will hurt privileged enclaves as well as working-class neighborhoods from coast to coast. Find out which will fare the worst

By Prashant Gopal

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How many former Lehman Brothers bankers or AIG (AIG) executives are likely to be buying a Park Avenue apartment or a home in Darien, Conn., this year? Most likely answer: not many at all.

As anyone who works on Wall Street, invests in the stock market, or just reads the newspapers knows, the past few weeks for the financials sector have been as ugly as Frankenstein's sister. People have seen their net worth eviscerated, if not obliterated completely.

But Wall Street's woes are going to have a direct impact on communities around the U.S.—and not just because the proposed $700 billion bailout will result in higher taxes for most Americans. The pain will spread beyond the banks themselves to their back-office and IT operations, accountants, lawyers, and other professional service employees who depend on work from finance companies. It will also reach regional banks across the country. Credit-card companies and firms that deal with auto loans are also vulnerable as the credit market tightens. Even insurance companies, which have remained relatively strong, could be hurt if the economy worsens and workers drop existing policies and decide not to take on new ones. From CEOs to security guards, the financial, insurance, and real estate sectors employ approximately 9.8 million people in the U.S. alone, nearly 7% of the entire American workforce, and their spending potential is even greater.

New York's Ripple Effect

Moreover, many of these jobs often tend to cluster around certain towns; bankers in one community and tech support in another. And while Manhattan is at the center of the turmoil, the fallout will be nationwide. Already the financial sector alone has lost 10,000 jobs through July, or about 2% of finance jobs. Moody's Economy.com projects that New York City and its suburbs will lose 65,000 finance jobs by the middle of 2010, or 11% of the total.

Economists are projecting that Manhattan real estate prices will finally sink under the pressure of financial-sector layoffs and shrinking Wall Street bonuses. Wall Street accounts for about 12% of jobs in the city of New York, and a quarter of salaries.

"New York is the stone in the puddle that ripples across the country," said Scott Simmons, vice-president and founding partner of Crist/Kolder Associates, an executive recruiting firm in Chicago.

Smaller Cities Could Feel It More

In other words, smaller financial centers and their suburbs could also see trouble ahead. BusinessWeek.com worked with PolicyMap.com, a Philadelphia-based online data and demographics site, to rank the communities with the largest percentage of residents working in finance, real estate, insurance, and leasing. Topping the list is Darien, Conn., an affluent New York suburb where the median salary is $168,000 and 27% of residents work in those industries. Bloomington, Ill., home of State Farm Insurance, came in second, followed by Hoboken, N.J., which is across the Hudson River from Wall Street.

But the impact of a downturn could be more serious in smaller cities that are less diversified. Wilmington, Del., where many of the nation's credit-card companies are headquartered; Charlotte, N.C., home of Bank of America (BAC) and Wachovia (WB); and Sioux Falls, S.D., where many back-office jobs are located, each have about 15% of residents working in finance, real estate, and insurance.