In the run-up to the recent agreement on phase I of Brexit, there was mixed news on the extent to which jobs in the City of London would be relocated to other European hubs, primarily Frankfurt. On one hand, we discussed the meeting between US Commerce Secretary, Wilbur Ross, and executives of JPM, Goldman, HSBC and other banks at Wilton’s restaurant during his trip to London in early November. The banks warned that they were close to a “point of no return” on moving jobs.
A group of large financial institutions with big London operations, led by Wall Street’s pre-eminent banks, have told the US commerce secretary that Britain’s unstable government and slow progress in Brexit planning may force them to start moving thousands of jobs out of City in the near future. The warnings came on Friday during a closed-door meeting between executives from the banks, which included JPMorgan Chase, Goldman Sachs and HSBC, and Wilbur Ross during the US commerce secretary’s visit to London, according to people briefed on the discussions.
A week earlier, we reported the head of Swiss bank, UBS, saying that the possibility that a fifth of its 5,000-strong UK workforce would be shifted was now unlikely to materialise following some “regulatory and political clarification about what we need to do”.
We can now, thanks to a survey by the Financial Times, get a better idea of the likely London exodus by March 2019 after the newspaper reviewed public statements by fifteen of the UK’s biggest financial institutions and conducted interviews with more than a dozen executives about Brexit plans. According to the newspaper, the number is…
The UK’s biggest international banks are set to move fewer than 4,600 jobs from London in preparation for Brexit — just 6 per cent of their total workforce in the financial centre — according to Financial Times research.
The FT analysis contrasts with consultants’ original claims that tens of thousands of jobs could move from London after Brexit — including an EY study this week that claimed 10,500 could leave on “day one”.
Some bankers say the lower estimates emerged as they thought through how many jobs and operations would need to move to the EU if the UK loses access to the bloc’s single market. “Every city wants thousands of people, but what are they going to do?” said one senior executive at a large US institution, adding that the thousands of people sitting in his London office “cover clients” who will mostly be remaining in the UK.
Two banks in particular, Deutsche Bank (not surprisingly) and JPMorgan Chase, had stated that several thousand jobs could move, although the FT estimates that the number is likely to be only several hundred. It’s the same with Goldman, despite Lloyds Blankfein’s famous tweet about spending “a lot more time” in Frankfurt.
In the case of Deutsche Bank, where Sylvie Matherat, head of regulation, publicly said up to 4,000 jobs could move, the FT estimates that just 350 jobs may leave by April 2019. The figure amounts to 5 per cent of Deutsche’s London headcount, a proportion broadly in line with other big banks. At JPMorgan, where chief executive Jamie Dimon warned before the Brexit vote of up to 4,000 London job losses, the number leaving before April 2019 is set to be closer to 700. Goldman Sachs, which has taken a new office in Frankfurt that could accommodate 1,000 people, expects to move fewer than 500 from London. HSBC is still planning to move “up to 1000 people”, although its chief financial officer recently said the figure could fall.
So the initial London exodus by March 2019 will be fairly modest and the banks have the prized transition period of two years. However, some banks are leaving the door open for further relocations in the aftermath of Brexit. According to Rob Rooney, CEO of Morgan Stanley International the real Brexit story will only be apparent “three to five years out”. As the FT explains.
Several banks say they are planning to move relatively few people in the immediate aftermath of Brexit because it will take time for their EU operations to build up. They expect to have very small balance sheets when the EU entities begin handling client business on April 1, 2019, and to be able to run some of the risk and support functions for those small EU entities from London.
Next year, banks are likely to begin “repapering” some clients to their new EU entities. The FT noted that one bank EMEA CEO said that he expected the ECB to push for more “market risk to be run onshore”.
However, a key question will be, where do the clients want to do business? We could be wrong, but our guess is that the majority will opt for the status quo if at all possible. The EU has already inflicted the nightmare of MiFID II on them.