If this week’s speech by Theresa May on her Brexit plans was designed to reassure the City of London and stop banks from shifting jobs out of the UK, early indications are that it appears to have failed.
The prime minister is scheduled to address business leaders at the annual World Economic Forum in Davos Thursday morning, but in the meantime a flurry of senior financiers popped up at the event to discuss plans for transferring chunks of their British operations out of the country.
While many bankers have praised Mrs May’s speech, welcoming the clarity she provided on her strategy, it seems only to have strengthened their belief for the need for swift action to relocate parts of their London-based investment banking operations.
Axel Weber, the former head of Germany’s central bank who now chairs UBS, told the BBC that “about 1,000” of the Swiss bank’s 5,000-odd employees in London could be affected by Brexit.
More than 4,000 of the 16,000 staff that JPMorgan Chase employs in the UK could be hit, its chief executive Jamie Dimon told Bloomberg TV.
“It looks like there will be more job movement than we hoped for,” Mr Dimon said. “We don’t want to — it is not a threat — it is just a fact that we will have to accommodate the new requirements.”
The instigation for the sudden hardening of bankers’ plans was Mrs May’s declaration that Britain would leave the EU’s common market following Brexit, eschewing a Norway-style relationship that would allow privileged access to the 500m-person market without full EU membership.
For the financial services industry, such a break is particularly problematic. Single market rules allow banks to sell products across the EU through “passporting” rules that allow them to bypass local licenses. Eurozone authorities are also expected to move to strip London of its ability to serve as the international hub for euro clearing.
The prospect of losing passporting rights meant several banks had already signalled they were preparing to move parts of their operations from London to the continent even before Mrs May’s speech. At Davos, HSBC confirmed plans to move 1,000 roles in its London-based investment bank to Paris, and its chief executive Stuart Gulliver told Bloomberg TV that Brexit would hit about a fifth of the unit’s revenues.
Meanwhile, Goldman Sachs denied a report in Germany’s Handelsblatt that it was planning to halve its UK staff numbers to 3,000 by moving many jobs to Frankfurt and New York.
“There remain numerous uncertainties as to what the Brexit negotiations will yield in terms of an operating framework for the banking industry,” Goldman Sachs said. “As a result, we have not taken any decisions as to what our eventual response will be, despite media speculation to the contrary.”
Mrs May is due to discuss her Brexit strategy with a handful of Wall Street bosses who have large British investment banking operations — including Mr Dimon — at a private meeting in Davos on Thursday.
Senior executives from some of the biggest US banks adopted a more moderate tone in private meetings with the Financial Times on the sidelines of Davos. They say management has drawn up plans for the most disruptive Brexit outcome — one that results in the UK leaving the EU without a trade deal to maintain access to the single market for the financial services industry.
The first step these US banks have taken is to ensure they have all the necessary legal structures, capital, licences, systems and regulatory approvals to continue operating in the EU after a “hard Brexit”, while maintaining as much flexibility as possible.
One US banker estimated this initial phase would “cost hundreds of millions of dollars but not a lot of people moving”. Another top US executive said: “You need to have a broker and a bank in the UK, and a broker and a bank inside the EU. We have that already. There will be other small adjustments, but it is as simple as that.”
The second step, which the US banks plan to take once the new trading arrangements between the UK and EU have been established, involves changes to their operations to optimise their set-up for the new arrangements.
“This is going to take a lot longer than people think,” the US executive said. “This is about real people and real people have to make decisions,” he said, giving an example of EU-born staff living in London with children soon to move from primary to secondary school, who may decide to pre-emptively move back to their homeland.
Mr Dimon said JPMorgan would need time to “move people, build systems and acquire real estate”. But he added that London was “a fabulous financial centre” and that he did not want to move staff unless he was forced to do so.
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