12/10/2020 Brexit News: The City of London's Banker Exodus Is Gaining Momentum - Bloomberg

Finance

City of London's Brexit Departures Are

Speeding Up
Whether there’s a Brexit trade deal or not, the big investment banks are shifting significant
resources to the EU.

By Elisa Martinuzzi
6 October 2020, 07:00 BST

Where have all the bankers gone? Photo: Bloomberg

Since Britain voted in 2016 to quit the European Union, there has been a fierce debate about
the harm this will do to the City of London. Pessimists warned that losing unfettered access to
the single market would force banks to move trillions of dollars in assets out of the world’s
leading financial hub. Hundreds of thousands of jobs would go, the Cassandras said. 

The reality has been more difficult to discern. The finance industry’s move to the continent
has been piecemeal, and Brexit preparations have been complicated by the onslaught of the
pandemic. Indeed, the management of the virus and the demands of home-working during
lockdown mean some firms have had to slow their Brexit planning.

Unfortunately for London, one can still discern a shift in direction — amid all the fog of the
Covid-19 war — that may support the Brexit doomsayers’ case. As Britain and Brussels embark
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on the final stage of talks to determine their future trading relationship, the trickle of
resources moving away from the City is turning into a steady stream. The biggest investment
banks have been spending hundreds of millions of dollars in the midst of a global recession to
lease real estate on the continent, while relocating activities and jobs to set up standalone
operations in the EU.

Although a single European rival to London may not emerge for some time, if at all, the shift
is already posing questions about London’s future role in global finance — and about Britain’s
coffers.

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Take JPMorgan Chase & Co. The biggest U.S. bank is moving the equivalent of $230 billion of
assets from the U.K. to its EU hub in Frankfurt, Bloomberg News has reported. That
represents one-tenth of the Wall Street giant’s total assets and more than a third of the assets
it holds in the U.K., its latest accounts show. About 200 employees are moving to continental
Europe in what one executive described as a “first wave” of relocations.

The potential impact on JPMorgan’s revenue is even more striking. In a recent interview with
Bloomberg Television, the bank’s top European executive, Viswas Raghavan, said 25% of the
wholesale revenue generated by the firm in the U.K. could be headed elsewhere. “It’s a
reasonable start,” he said.

This sense that a quarter of the City’s investment bank business might be in play is shared by
other London financiers involved in Brexit preparations. Morgan Stanley is looking for a new
headquarters in London that could be 25% smaller than its current space there.

Where larger firms go, smaller ones will follow, as will the ecosystem of lawyers and
consultants around them. For a country that derived 12.3 billion pounds ($16 billion) in
corporation tax from financial services in 2019 — 22% of all government receipts — the stakes
are phenomenally high.

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As things stand, next year financial services firms in the U.K. will lose their “passport” for
selling their services in the EU. Assuming the two sides agree on a deal (still a big
assumption), the City firms will probably have to rely instead on a system of “equivalence.” In
that scenario, the EU would be able to decide unilaterally whether the U.K.’s rules are close
enough to its own regulations to allow finance industry access.

Even if granted, an equivalence regime will leave firms with too much uncertainty about their
long-term access to the EU, giving them little choice but to maintain a continental base.

What’s more, Europe is desperate to chip away at British dominance. The European

Securities and Markets Authority will let London’s clearing houses sell services into the EU
after Dec. 31, but it’s also planning a “comprehensive review of the systemic importance” of
the industry, which could see that permission removed. Clearing houses play a critical role in
safeguarding financial stability, as well as managing collateral for buyers and sellers of
derivatives. The U.K.’s stranglehold on clearing euro swaps is of particular concern to the EU.

London’s position as the biggest investment-management center after New York is also
uncertain. ESMA wants to limit EU-based funds delegating portfolio management to teams
outside the bloc, including the U.K. About 90% of the assets under management in EU funds
are delegated in this way.

The City of London’s dominance in Europe, underpinned by the deregulation of the 1980s
and a favored legal system, isn’t yet threatened, and forcing the creation of a European rival
could backfire, as my colleague Lionel Laurent argues. But the direction of travel has been
set. Unless London can draw business from elsewhere, the City won’t be quite the destination
it once was.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its
owners.

To contact the author of this story:

Elisa Martinuzzi at emartinuzzi@bloomberg.net

To contact the editor responsible for this story:

James Boxell at jboxell@bloomberg.net

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for
European finance at Bloomberg News.

Read more opinion

Follow @ElisaMartinuzzi on Twitter

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