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Post-Brexit, some banks consider their options

Updated Tuesday, 7th February 2017

As some banks consider leaving London to adjust to a post-Brexit world, Emmanuel Yujuico suggests that there might not be a single replacement hub in the future

Lloyds Banking Group headquarters, London Creative commons image Icon .Martin. under Creative Commons BY-ND 4.0 license Would Lloyds Banking Group abandon its London HQ for pastures new?

The UK's self-inflicted wound called "Brexit" has not gone unnoticed by other European financial centers keen on picking up some banking-related employment and revenues. For the UK to dismember its largest industry just like that is senseless, and there is no shortage of those wanting to take advantage of the situation. With the loss of passporting rights allowing seamless trading with EU countries seemingly inevitable, the race for a new EU financial center to supplant London is on--preferably one that *actually* uses the euro currency. Although there are any number of purported contenders, recent articles suggest that the front-runners for picking up what business London loses are Frankfurt and Dublin:

Frankfurt and Dublin are emerging as the biggest winners at London’s expense as banks prepare for Brexit by planning new hubs in the European Union. Standard Chartered Plc and Barclays Plc are considering choosing Ireland’s capital as their EU base for ensuring continued access to the bloc, according to people with knowledge of their contingency plans. Goldman Sachs Group Inc.Citigroup Inc. and Lloyds Banking Group Plc are eyeing Frankfurt, other people said.

Frankfurt has been touted as a once-and-future destination for bankers, but it's fair to point out that an expanded role for it was also touted with the introduction of the single currency. Yet, it remains a distinctly second-fiddle financial center. Can Brexit change matters?  

Frankfurt is a natural choice for many banks. The German city is home to the European Central Bank, the Bundesbank, as well as the European Insurance authority. The German Federal Financial Supervisory Authority hosted 50 representatives from some of the world's biggest banks on Monday to explain the steps required to set up a business in Germany.

"As committed Europeans, we do not see Brexit as a reason to celebrate," said Peter Lutz, the authority's deputy head of of Banking Supervision. "But now we need to take a pragmatic approach and offer institutions the necessary supervisory clarity for their strategic decisions."

Dublin, Ireland has advantages that Frankfurt lacks such as sharing the same language as the UK and one of the lowest corporate tax rates in the EU at 12.5%.

There are plenty of advantages to Dublin: English as the main language, same time zone as London, low corporate tax rate. Plus more than half of the world's leading financial services firms already have subsidiaries in Dublin, according to the city's International Financial Services Centre.

Paris is also in the running, but labor laws that make it harder to hire and fire have been a longstanding deterrent for more banks moving there:

Paris, only a short train trip from London, is hoping to boost its financial services sector by attracting bankers fleeing Brexit. The city launched an advisory service for companies that want to relocate from London following the U.K.'s vote to leave the European Union. HSBC, Britain's largest bank, has already said it could move roughly 1,000 jobs from London to Paris. Financial services firms in Paris manage 2.6 trillion euros worth of assets, according to the French government.

The city is also home to Euronext, Europe's second largest stock exchange, which is just behind London in terms of transaction volume and stock market capitalization. Paris is also key for the bond markets; firms in Paris carry out nearly 35% of total bond issues in the eurozone. However, some banks are concerned about strict French labor laws.

My inclination is to believe that the era of a consolidated financial center are over. No by design, but by reason of no destination having the same combination of positive attributes London has. Perhaps more diversification will be good in European finance? In any event, you don't expect the emergence of another London-like center.

This article was originally published by the International Political Economy Zone under a CC-BY-NC-SA licence

 

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