UK economy in dire straits: leading banks now officially plan to Brexit too

theresa-may-european-council-2016-tusk

EU Heads of State or Government met on 21 October 2016 in Brussels to address the ongoing negotiations for trade agreements and the modernisation of Trade Defence Instruments. From left to right: Ms Theresa MAY, UK Prime Minister; Mr Donald TUSK, President of the European Council. Shoot location: Brussels – BELGIUM Shoot date: 21/10/2016 Copyright: European Union

At the morrow of the Brexit vote, back in late June this year, one of the first warnings on the possible disastrous effects of the UK leaving the European Union was all about the banking sector. The entire British financial sector was in the eye of the storm and the world’s main media outlets started to whisper about prominent banking groups planning to leave the UK after the vote.

However, nothing more concrete and official ever sounded on the matter until the chief executive of the British Bankers’ Association recently claimed that Britain’s biggest banks are already preparing to relocate out of the UK in just months. This is something that indeed happened only last Saturday.

Background

As reported by the European Sting only days after the British referendum, huge US banking groups such as JPMorgan Chase, Goldman Sachs, Citigroup and Morgan Stanley had started immediately to plan on a relocation outside the United Kingdom as a first consequence of the vote. The “leave” outcome changed everything and forced those groups to work actively on a “plan B” amid concerns of a decrease in business possibilities if they were staying in a country outside of the EU. News and rumours on those scenarios have been following one another until last weekend when the main alarm rang.

Hands are quivering

Anthony Browne, Chief executive of the British Bankers’ Association, made a dramatic statement last Saturday on the Observer Sunday saying that Britain’s biggest banks are preparing to relocate outside of the UK in the first few months of 2017 amid growing fears over the impending Brexit negotiations. According to Mr. Browne, several smaller banks would even be making plans to get out the country before Christmas. “Most international banks now have project teams working out which operations they need to move to ensure they can continue serving customers, the date by which this must happen, and how best to do it”, he added. “Their hands are quivering over the relocate button”, he underscored.

Passporting issue

Despite being a crucial matter, with the potential of putting thousands jobs at risk, the relocation risk itself is not where Mr. Browne’s attention focused. His interview with the Observer indeed brought to light what could represent the hottest point of discussion of the EU-UK negotiations in the months to come: passporting. “For banks, Brexit does not simply mean additional tariffs being imposed on trade – as is likely to be the case with other sectors. It is about whether banks have the legal right to provide services”, the BAA chief explained.

Banks in the United Kingdom depend on a European “passport” to serve clients across the 28-country European Union. Big American groups like the ones mentioned above have been running their business from Britain for decades, using its status of member state to then access the other EU markets. The “leave” vote clearly worry big banking groups that this right will end after Britain leaves the EU and that they would no longer be able to run their European businesses based out of the UK.

The next move

Now the British banking sector is preparing its next move, as the industry is clearly determined to seek a continuation of the EU’s “passporting” regime, so to operating throughout Europe without seeking separate authorisation. The match is too important, and Andrew Browne made it clear. “Banking is probably more affected by Brexit than any other sector of the economy, both in the degree of impact and the scale of the implications”, Mr. Browne explained.

“It [banking] is the UK’s biggest export industry by far and is more internationally mobile than most”, he added. A report by the financial industry lobby group TheCityUK indeed shows it all, and reports that the sector generates around 12% of the UK’s total economic output and pays out approximately £66bn in taxes a year. “As an industry, we have asked for some form of that passporting to continue once we leave, enabling customers on both sides of the Channel to continue getting the services”, Browne declared.

The “equivalence regime”

Indeed European Union rules state that some particular deal for accessing the markets at zero tariffs is possible for outsider countries that are in line with the bloc’s ruling system, the so-called “equivalence” regime. Many experts believe that this clause is something the UK could use in the future as an ex-member state. However, Mr. Browne has also warned that in European capitals and among British eurosceptics “the rhetoric is hardening”, and that many could be already trying to ride the wave and stop any possible progress. “The public and political debate at the moment is taking us in the wrong direction,” the Observer Sunday newspaper quoted Browne in his interview.

The job market

“It is understandable that other European cities want to attract jobs from London”, he then added, coming straight to the point. “Delegations from Frankfurt, Paris, Dublin and Madrid are all coming to the UK to pitch to bankers”. French President Francois Hollande almost confirmed how the Brexit could be potentially profitable for his country and other EU member states, just a few days ago. “Britain’s decision to leave the European Union should make us seek even more investments, make us showcase France’s attractiveness”, he told journalists at a FedEx Corp (FDX.N) facility in the Parisian suburb of Roissy last week.

Further, months ago economic news outlets like the Financial Times reported that lawyers close to the financial world confirmed that following Brexit many of the big US banks would likely need a new legal base, and that cities like Dublin, Paris and Frankfurt could be scanned as new potential home bases. “I am pro-competition and long may they try to make their labour market and fiscal policy more attractive to international investors – that is not a problem”, highlighted Mr. Browne.

Where “the problem” lies

“The problem comes”, BAA’s chief executive said, “when national governments try to use the EU exit negotiations to build walls across the Channel to split Europe’s integrated financial market in two, in order to force jobs from London”. “From a European perspective, this would be cutting off its nose to spite its face. It might lead to a few jobs moving to Paris or Frankfurt but it will make it more expensive for companies in France and Germany to raise money for investment, slowing the wider economy”, he also said.

The Observer interview by Andrew Browne had the clear intention to underline how much the BAA is worried by the Brexit. They made it clear already, when before the June referendum, the organisation led by Browne had conducted a survey that showed that a large majority of banks wanted to remain in the Union. Now that the situation has turned to be too complex and alarming to handle, it has become even more important for the BAA to put all cards on table before any of the big groups that are now operating from the City of London relocate their activities under the Tour Eiffel.

Looking to the future

Browne’s interview may be seen also as a pledge to the British financial world for a continuous effort by the BAA to mitigate the Brexit risks, which can really disrupt to Europe’s financial markets, according to him. “That is why we have asked for transition arrangements, to ensure an orderly change-over to whenever the new trade deal comes in”, he said. “The real challenge for business was not the day after the referendum – it will be the day after we leave the EU”, he shouted at the end of his Saturday interview.

UK’s Prime Minister Theresa May has already said she will start formal talks to leave the EU by the end of March 2017, where she will be “ambitious” and will negotiate the “best deal” for the British people. However, Mr. Browne didn’t seem to be so confident in politics at all.

“The political process also makes it difficult for business. Trade talks between the UK and EU will take years to agree and more years to ratify”, said Mr Brown. “In big trade talks, nothing is agreed until it is all agreed, normally at three in the morning. In the meantime, we will have left the EU in 2019”, he then added by the end of his Saturday interview.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

The Future of Retail: Changing shopping patterns will mean retailers need to invest in costly and complex solutions

Is our brave new world about to burst?

The impossible end of the war in Syria

Alexis Tsipras ready to test Eurozone’s political sturdiness; Up to what point?

Environmental labelling, information and management schemes are central to the circular economy

ECB will be the catalyst of Eurozone’s reunification

The European giant tourism sector in constant growth

Europe votes against GMOs but the Council votes for TTIP

Everybody for himself in G20 and IMF

Roxane in Cambodia

ITU Telecom World 2017: exploring smart digital transformation

Greece: Tsipras’ referendum victory does not solve the financial stalemate of the country and its banks

MWC 2016 LIVE: Xiaomi looks to revive growth with flagships

European Commission: Does Apple, Starbucks and Fiat really pay their taxes?

Light at the end of the Eurozone tunnel

Close to final agreement on the EU Banking Union

To all far-right partisans who exploit Charlie Hebdo atrocity: a peaceful reply given by a peaceful student

European Youth Vlog

Currency Union might not let an independent Scotland join the EU as the “Yes” front now leads

How dearly will Germany pay for the Volkswagen emissions rigging scandal

ECB to buy corporate bonds: Will government financing be the next step?

Progress in medical research: leading or lagging behind?

Eurozone: Subdued inflation can lead to more recession

G20 LIVE: G20 Statement on the fight against terrorism

For Youth Rights: steps forward for better protection.

Trump and Brexit: After the social whys the political whereto

Trade surplus up production down in Eurozone

Eurozone’s credibility rock solid

In China things are moving in the right direction

Merkel’s triumph will make Berlin more unbending

ECB’s €1.14 trillion again unifies Eurozone; Germany approves sovereign debt risks to be pooled

“Working together to make a change at the COP 21 in Paris”, an article by Ambassador Yang of the Chinese Mission to EU

The West and Russia took what they wanted from Ukraine

Preparing for developing countries the ‘Greek cure’

China Unlimited Special Report: at the heart of Beijing


Re-thinking citizenship education: bringing young people back to the ballot box

MWC 2016 LIVE: Zuckerberg warns mobile industry not to ignore the unconnected

‘Internal security’ or how to compromise citizens’ rights and also make huge profits

Collaboration: the key to success in the digital economy

European Youth calls on European Council for urgent action on “humanitarian crisis” and questions the EU/Turkey deal respect of human rights

While EU Open Days 2013 discuss the 2020 strategy, Microsoft shares a glimpse of EU 2060

EU Commission: Germany can make Eurozone grow again just by helping itself

European Court of Justice to Google: It is #righttobeforgotten but not #righttoberemembered

European Youth Forum welcomes strong stance on human rights in State of the Union

Eurozone: Bankers-politicians rig keeps robbing taxpayers

Legal Manager – 2050

European Union: Retail sales show deep recession

Draghi’s top new year resolution: Quantitative Easing

New VAT rules in the EU: how a digital sea could have become an ocean

French elections: by the time the EU economy revives and the migration crisis is solved extremists could take over Europe

European Globalisation Adjustment Fund, who gets it and who pays the bill?

Apple’s tax avoidance scheme remains as creative as their new iPhone

Varna (Bulgaria) awarded European Youth Capital 2017

The financial sector cripples Eurozone growth prospects

Liaison Officer – 2020

Chatterbox Rome Declaration cannot save the EU; Germany has to pay more to do that

European Court rules that ECB’s OMT program of 2012 is OK; not a word from Germany about returning the Greek 2010 courtesy

The big five EU telecom operators in dire straights

EU Banks still get subsidies from impoverished citizens

EU Commission expects consumer spending to unlock growth

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s