When Brexit comes will London's bankers move overseas?

A hard Brexit is coming and City bosses are making plans to relocate thousands of their London staff to Frankfurt, Paris and even Poland. But will they stay or will they go, asks James Ashton 
Bank-exit
Paul Dallimore
James Ashton23 January 2017

Looming behind St Andrew Holborn, the Sir Christopher Wren-designed parish church that sits at one of London’s busiest junctions, a glass-and-steel giant is taking shape. Goldman Sachs’s gleaming £1 billion European headquarters has been a long time coming.

The investment bank bought an old BT building around the corner from its Fleet Street base 16 years ago but demolition plans were halted when a set of Sixties ceramic murals were granted protected status.

Four years ago, the “banking factory” with capacity for 8,000 staff moved a step closer to reality when approval was granted and the murals were relocated. Today, construction is gathering pace and by 2019 it could be complete — just as the UK formally exits the European Union.

Post-Brexit, as fears rise of a banking exodus, will the City of London still warrant headquarters status? The Square Mile burghers hope so. But last week, as Theresa May confirmed Brexit meant giving up membership of the single market, bankers gave voice to the numbers they have for months been whispering quietly — the human cost to the financial services industry of the UK going it alone.

JP Morgan bosses are touring Germany and Poland looking to relocate 2,500 staff, while Morgan Stanley has identified 1,000 sales, trading and legal jobs that could go. HSBC indicated it would transfer about 1,000 trading staff from London to its Paris base on the Champs-Élysées in two years’ time. The chairman of UBS, Axel Weber, said around 1,000 of the Swiss bank’s London employees would be affected by Brexit. Goldman, whose very visible commitment to the capital is taking shape on Farringdon Street, played down reports that half its London workforce was on the move. A final decision is still to be made, but it could send 1,000 jobs to Frankfurt to continue servicing EU clients. As JPMorgan Chase supremo Jamie Dimon said: “It looks like there will be more job movement than we hoped for.” With the loss of passporting rights that let banks sell services across the EU from London, even Lloyds Banking Group, which does the majority of its business in the UK, will need to set up a subsidiary, probably in Frankfurt, so it can hang on to its German and Dutch retail clients.

But it is not all doom and gloom. Bankers are still betting that London will hang on to its crown as Europe’s dominant financial centre, with Barclays boss Jes Staley saying it will continue to be the “financial lungs” of the region. HSBC chief executive Stuart Gulliver forecasts that the industry’s Brexit-induced lost revenues will be made good in two or three years’ time and that little of the foreign exchange, bonds and equities activity would need to move. Insurers and asset managers believe it will be much easier for them to adapt to the new world.

JP Morgan and Morgan Stanley are rumoured to be relocating staff
EPA

“The banks are actually very keen not to move jobs if they can avoid it, not least because their staff don’t generally want to move overseas. They’ve got houses here and they enjoy living in London,” says Anthony Browne, chief executive of the British Bankers’ Association (BBA). “The banks are working out what it is they need to do, what all the options are. Now we have certainty we are not going to remain members of the single market, we can cross that off the list.”

So much remains up in the air, such as confirmation that EU nationals already living in the UK are free to stay on after Brexit. This uncertainty affects 12 per cent of City workers — as well as many more in other industries. Big hitters led by Baroness Vadera, chairman of Santander UK, are trying to persuade international lenders not to act yet as a future trading agreement is thrashed out for the financial services sector and bosses press for a standstill deal in the meantime. Consulting firm Oliver Wyman predicts the best-case scenario would have cost the UK 4,000 jobs and £500 million in tax revenue and the worst — where our relationship with the EU is defined by World Trade Organisation terms — could add up to losses of 35,000 jobs and £5 billion in tax. However, those latter figures could be doubled by the knock-on effect elsewhere in the City — for example, if lines of business are closed because Brexit has made them too costly to continue.

How Europe's newspapers reacted to Theresa May's Brexit speech

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The irony is not lost on financiers — vilified for their fat bonuses and supposedly thin morals — that a vote to leave has suddenly made them flavour of the month. The strategic importance of financial services — accounting for

12 per cent of the UK’s economic output — is one thing; the wealth that keeps tills ringing in London’s best restaurants and car showrooms is quite another. Rather than physically relocating people, some of the rebalancing can be done by not filling roles as staff quit and hiring alternatives hundreds of miles away.

For now, a whole Brexit industry has whirred into life as businesses consider what to do next. Karen Briggs, head of Brexit at consulting group KPMG, reports that clients are most concerned about customs, tariffs, immigration, supply-chain management, tax and passporting.

“The potential for some businesses to relocate outside the UK is an area of huge interest, but in general companies are not presenting things as a binary choice between uprooting themselves or persevering in the same location,” says Briggs, who co-ordinates a team of 35 UK industry “Brexperts” that have helped to plan for different scenarios to hedge against disruption. “It’s more about keeping their options open and being able to make a nimble response.” Beyond financial services, activity has been brisk in the healthcare and airline industries.

“It’s all systems go and that will carry on right through this calendar year,” says a senior Brexit lawyer at a City legal firm that has begun staffing up as demand for regulatory advice increases. “So far, it’s more of the intellectual stuff rather than hordes of lawyers trawling through documents.”

Fears are rising of a 'banking exodus'
EPA

But that will quickly change. Contingency plans are being made for the hardest Brexit as banks examine their operations line by line, which regulators they must comply with as they shift business — and how few staff they can get away with relocating. Finding new real estate is the easy bit. What takes time is the setting up of new legal entities with the appropriate banking licences, trading technology, clearing, risk and payments systems. Bosses are divided on where to go.

“Paris appeals, but what about the labour laws?” says one senior banker. “And if we take advantage of the tax-free deals that are on offer, they’ll be burning piles of tyres in La Défense,” he adds, referring to the major business district to the west of Paris. Not only do Paris and Frankfurt have inferior nightlife, but they lag behind in the education stakes too. According to Reuters Breakingviews, when JPMorgan explored how hard it would be to move its currency trading desk from London to Paris years before the Brexit vote, it concluded it would take 30 years to find school places for the offspring of the department’s 800 staff. Anthony Browne of the BBA is convinced London will hang on to its global pre-eminence.

“It has so many strengths: the depth of talent and the agglomeration of so many sectors based here. That is not going to go away. Banks and other financial services firms are still going to want to have major operations based out of London.”

As an example, just look at how Goldman has chosen to run its business from London. Its decision to scale up here can be traced back to the introduction of the euro. Co-locating its traders with its compliance and technology experts is cheaper and safer. It is why the vast majority of the Wall Street bank’s 6,000 staff in Europe, Middle East and Africa sit in London, even though only one-third of its business in the region is for UK clients. There are only 250 bodies in Frankfurt. Brexit means New York has already gained, Goldman’s chief executive, Lloyd Blankfein, confessed last week, because the “vampire squid” bank was already moving more operations staff to London to take advantage of the time zone.

“In New York it is hard to watch Asia, and so we were on track to move more and more of our global activity, so global ops, global technology, all those things made more and more sense to operate out of UK,” Blankfein said. “Now we’re slowing down that decision… because we don’t value doing things twice; moving them there and then moving them away from there.” As for its new European headquarters, it was always going to sub-let space once staff had been moved in from its two sites on Fleet Street. Now Goldman might have to sub-let some more.

Follow James Ashton on Twitter: @mrjamesashton

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