Biggest London City Banks ready to move core European operations to Frankfurt or Dublin?

Event Date: 15/06/2016
Leave supporters hold flags as they stand on Westminster Bridge during an EU referendum campaign stunt in which a flotilla of boats supporting Leave sailed up the River Thames outside the Houses of Parliament in London, Wednesday, June 15, 2016.
Reference: EP-037803A
Copyright: © European Union 2016 – Source : EPAPimages.

The United Kingdom last week has voted to leave the European Union and thus opened the most uncertain chapter of its modern history. The business side of the complicated Brexit drama is indeed where the whole world is currently looking at, as the main economic players are still trying to figure out the way they will be influenced by all that turbulence in the markets. Inevitably, the banking sector raises the majority of concerns.

Warnings from the banking system

Prominent US banks such as JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley have been historically setting up their businesses in Britain, as London used to be their main point of access to the European Market for decades, thanks to the EU member-state status the UK enjoyed. Weeks before the vote though, the same big banking groups started to warn they might move at least some of their operation outside of the UK in the event of a Brexit.

Now that the “leave” nightmare has become real the news are certainly not good. Last Sunday it was circulated in the markets that some banks have already begun to take actions to shift their business outside Britain. As reported by the Financial Times on Sunday, lawyers close to the financial world are now warning that after Brexit, many of the big US banks would likely need a new legal home base as they would no longer be able to run their European businesses from the UK. Cities like Dublin, Paris and Frankfurt are reportedly being scanned as new potential home bases.

“Thousands of jobs at risk”

It’s also the “human aspect” to be alarming in this thorny Brexit aftermath. Some of the banking groups mentioned above had reportedly warned before the 23rd of June that thousands of jobs would be moved outside of London if Brexit would happen. HSBC had said before the vote that it could move as many as 1,000 trading jobs to Paris in the event of a “leave”, while Jamie Dimon, Chief Executive of US bank JPMorgan with 16,000 people in Britain, warned that a Brexit could mean a loss of up to 4,000 UK-based jobs.

Mr. Dimon tried to shed light on the future moves of JPMorgan just after the Brexit vote, and sent a memo to his employees. “For the moment, we will continue to serve our clients as usual, and our operating model in the U.K. remains the same”, Mr. Dimon argued. “However, in the months ahead, we may need to make changes to our European legal entity structure and the location of some roles”, he warned.

JPMorgan’s worries

“We recognise the potential for market volatility over the next few weeks and we are ready to help our clients work through it”, Mr. Dimon declared in the note that was also signed by Daniel Pinto, head of the Corporate & Investment Bank at JPM and Mary Erdoes, Head of Asset Management. “As of today, there are no changes to the structure of our clients’ relationships with JPMorgan Chase or their ability to work with our firm, but again this may change in the coming months or years”, the warning ended. Many Brexit backers had seen such declarations as mere scaremongering, although those warnings should not have been undervalued at all.

International Central Banks’ reaction

The weekend also offered another big news, as on Sunday the Bank for International Settlements published an official statement on Brexit after holding its annual meeting in Basel, Switzerland. The BIS, an international financial institution owned by central banks to serve as a sort of central bank forum, said last Saturday evening that central banks are ready to cooperate in order to support financial stability.

“Central bank Governors at today’s GEM discussed the implications of the EU referendum in the United Kingdom”, was the official statement signed by Agustín Carstens, Chairman of the Global Economy Meeting. “Governors endorsed the contingency measures put in place by the Bank of England and emphasised the preparedness of central banks to support the proper functioning of financial markets”, Mr. Carstens underscored, openly showing a keen intention to spread calmness over an already turbulent global market.

Contingency plans already put in place

“With good cooperation at the global level, I am confident that uncertainty can be contained and that adjustments will proceed as smoothly as possible”, BIS General Manager Jaime Caruana echoed Mr. Carstens in the text of a speech seen by Reuters last Sunday. “Extensive contingency plans by the private sector and central banks have been put in place to limit disturbances in financial markets”, Mr. Caruana remarked before pouring also some uncertainty to the matter: “There is likely to be a period of uncertainty and adjustment”, he stressed. “The United Kingdom is closely integrated in the global economy, and it hosts one of the world’s most important financial centres”, Mr. Caruana added.

The heart of City

Only a few days have passed and it is barely impossible to conceive what Brexit will bring to the financial world in the future, and the approach the main players in the banking sector are taking is just a proof of that. Before the vote it seemed like the end of the world would be near while after the vote it looks as if the global economy and also the European society, are in the eye of the storm waiting for something bad to happen.

“London is surely too big, and its allure too strong, for any big bank to quit altogether”, the Economist  wrote a few days ago, echoing a much needed reassuring position. However, it is absolutely in the interest of City’s big bankers, and possibly of all the people employed at the heart of the UK’s financial district to carefully weigh all possible chances. The City of London, which employs 360,000 people in financial services, won’t shut down in a night for sure, but it is likely to lose some important business and prestige in the future, lose ground to some smaller financial centres such as Dublin or possibly Frankfurt, places which may sound a bit more appealing destination for traders these days.