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|Subject: Brexit sparks first bank job exodus from London Sun Jan 22, 2017 6:50 pm|| |
|Almost a century ago, on a February morning, a troop of gendarmes stormed into the Hotel Elysee Palace, a luxurious establishment built to accommodate visitors to the Paris World Fair of 1900. Their quarry was a Dutch exotic dancer who would go down in history as the embodiment of a female spy — Mata Hari. She was blamed for the deaths of 50,000 allied soldiers through her spying for Germany and was executed by firing squad later that year.|
Today, the art nouveau building on the Champs Elysees is poised to play another minor role in history. The ornate block is now the French headquarters of HSBC. Desks are likely to be rearranged in its four storeys to take some of the 1000 bankers about to be moved from London by chief executive Stuart Gulliver in response to Theresa May’s speech last week, which confirmed Britain was destined for a “hard” Brexit with no membership of the single market.
Big investment banks warned throughout the referendum campaign that anything short of the status quo would see them forced to ship jobs from London.
While that was dismissed as bluster by “leave” campaigners, contingency plans drawn up since the shock vote of June 23 are now being acted on — and not just by HSBC.
UBS laid out plans to shift roughly 1000 posts from London city to the continent. They will most probably go to Frankfurt or Spain, according to its London-based investment banking head Andrea Orcel.
Goldman Sachs boss Lloyd Blankfein, meanwhile, implied he would move jobs to New York, after being forced to deny reports that 50 per cent of its London workforce (some 3000 people) would be dispersed to Frankfurt, Paris, Madrid and Warsaw. JPMorgan’s Jamie Dimon, whose 16,000-strong British workforce is spread mostly between Glasgow, Edinburgh and Bournemouth, said jobs were likely to be plucked from Britain.
“We don’t want to,” said Dimon, speaking on the fringe of the World Economic Forum in Davos. “It is not a threat — it is a fact that we will have to accommodate the new requirements.”
The trading arrangements outlined by May represent the worst possible outcome for the big banks. Much of the lucrative trading and deal-making conducted from London by bankers depends on the freedoms afforded by the single market under the EU’s “passporting” system.
“Theresa May’s speech crystallised many banks’ decisions about moving people into the rest of the EU,” said one source. “Banks now have more certainty about what is happening, and many are unleashing their contingency plans.”
Insurance companies can adapt relatively easily by simply tweaking their legal structures. Lloyd’s of London, for example, has said it will open an office in the eurozone that will allow it to keep selling to the European Union. Aviva already has a subsidiary that sells home and motor insurance in Germany. Fund managers also say they should have a relatively easy job adapting.
Yet investment banking — which has burnished the capital’s historic status as a global trading hub — is in a very different position. London-based bankers sell bonds, shares and derivatives on behalf of companies from all over Europe to investors across the world. Without passporting rights, every phone call, email and meeting about those transactions will need to be conducted on EU soil.
“The loss of passporting does not mean we can just send one person to the eurozone. That worker will need compliance and legal structures around them,” said a senior banker in a lender that is plotting to move people across the Channel
. “Then a bank may decide it makes more sense to have trading in the European hub. I think in 10 years, about 30 per cent of the workforce will have left the City.”
Bankers really are fleeing Britain. These bankers have been a lucrative source of income for the government. Every £1m ($2m) bonus paid in the City means £450,000 of income tax, for starters.
“This is about as bad as we could have possibly imagined,” said a senior banker at a US investment bank.
“We’re just trying to figure out what this means for our business. Plan A would have been to maintain the status quo, but now we have to look to plan B and C, which is getting new bank licences in Europe and moving jobs.”
For Ashoka Mody, a former senior economist at the International Monetary Fund, the flight of the bankers marks a new dawn for Britain. According to Mody, a long-time Brexit enthusiast who is now a visiting professor at Princeton University’s Woodrow Wilson School of Public and International Affairs, the “finance-property bubble” has unbalanced the British economy.
Property speculators, aided by City financiers, created an unsustainable boom in London house prices, he argues. As foreign cash piled into the capital, the pound became grossly overvalued, blunting the competitiveness of Britain’s exporters.
“The British financial sector and the property sector are two sides of the same coin, creating financial bubbles,” he said. “If these guys actually follow through on the threats and leave, it’s a great day for Britain.”
So far, banking has been conspicuous by its absence from the government’s blueprint for post-Brexit Britain.
In one sense, that is odd: finance is what Britain is good at. Love it or loathe it, Britain’s financial sector is undeniably dominant. Banks, insurance companies and asset managers produce about 12 per cent of the nation’s economic output, and account for 11.5 per cent of tax receipts, according to research by PwC for the City of London Corporation.
The figure includes taxes paid directly by banks, insurers and asset managers — such as corporation tax and the bank levy — as well as their employees’ income tax.
Yet those figures do not take account of the unquantifiable benefits generated by the accountants, lawyers, public relations consultants, management consultants, business schools, car dealerships, estate agents, private schools, high-end restaurants, theatres and other ancillary industries that benefit from the City’s spoils.
Nobody predicts all the City’s contribution to the country will disappear, simply through the loss of a few thousand bankers who handle EU-related business from London. Yet there will be a cost.
Mark Boleat, policy chairman of the City of London Corporation, said even if Britain secured a trading arrangement similar to what it has now, it would lead to a £2bn loss in revenues, £500m in tax revenues and 4000 jobs.
In a worst-case scenario, where Britain was no longer part of the EU or the European Economic Area and essentially had the same status as Switzerland, some £20bn in revenues would be lost and 35,000 jobs would be at risk.
There is an argument that a messy divorce could be more damaging for the EU than for Britain.
Mark Carney, governor of the Bank of England, recently declared that the European financial services industry had more to lose. Last week Barclays boss Jes Staley said London would remain the “financial lungs for Europe”.
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