/ world today news/ One of Great Britain’s greatest prides – London’s status as the leading financial center in Europe, if not the world – is beginning to crack. Britain’s exit from the EU has accelerated the flight of financial companies from British jurisdiction. The outflow of financial assets from the City of London is already estimated to be hundreds of billions of pounds, with staff losses going to thousands of jobs.
According to global audit group Ernst & Young (EJ), which has tracked the Brexit-related filings of financial sector companies over the past four years, at the end of the third quarter of this year businesses with total assets of more than £1.2 trillion publicly has announced its plans to settle in the European Union (At the beginning of the year, the relevant figure was equal to 1 trillion pounds).
The total number of financial sector jobs that have migrated from the UK to the European Union since the Brexit referendum has exceeded seven and a half thousand. Overall: Since 2016, 88 out of 222 UK companies regularly monitored by the NRA have reported that they have moved or are considering moving their operations and staff to one of the EU countries, and 26 companies have announced migration to several EU countries.
A hopeless transition period
The most active British financiers are moving to Ireland, France, Germany and Luxembourg. Dublin is the most popular location for relocating staff and setting up new European hubs or offices for financial companies – according to the IA, 34 UK firms have already confirmed or are considering relocating their business to the Irish capital. Frankfurt, Germany’s largest financial center, attracted a total of 23 companies, 19 of which were commercial or investment banks or brokerage firms. 26 companies have chosen Luxembourg as their new location, and another 20 – Paris.
Many financial services firms have completed most of their relocation plans even before the start of this year and their activity in the first half of the year has not been particularly visible, said Omar Ali, managing partner of the UK financial services group, in a recent statement from YA. However, as the transition period, which is set before the end of 2020, is completed, there may still be a flurry of additional personnel and operational decisions.
Now many financial companies, Omar Ali added, are watching the prospects for negotiations between the UK and the European Union for a future trade relationship, which initially reached an impasse. The first meeting between negotiators Michel Barnier (EU) and David Frost (UK) took place in early March, exactly a month after Britain left the EU, and did not produce any results. Barnier said Brussels and London remain at odds on four fronts, the first of which he called the economy – Britain is opposed to introducing legally binding common rules on competition and business regulation.
Further negotiations also failed to produce compromise solutions, and in early September British Prime Minister Boris Johnson announced that the deadline for an agreement with the EU was October 15, when the next EU summit would be held in Brussels. If the deal is not concluded by then, the European Union and Great Britain will build their trade relations in accordance with WTO rules, that is, Great Britain will de facto leave the EU economic space. To understand the scale of this event, only one figure can be given: last year, EU countries accounted for 47% of the volume of foreign trade of the Island.
The new public statements of the British financial sector about the relocation of business to the European Union were precisely related to the lack of progress in the negotiations. A few days ago, German Chancellor Angela Merkel announced that it was impossible to talk about a breakthrough, so it remains only to be optimistic while the negotiations continue. In turn, Boris Johnson said on October 4 that he would not want the Brexit transition period to end in failure, but Britain would survive such an outcome.
“As the deadline approaches, the lack of clarity about future trade agreements is fueling the ongoing debate in the financial services sector. Companies can no longer rely on short-term equivalence assessments that are in line with EU rules, and the sector is increasingly focusing on the long-term. Firms are looking for new standards to support the UK financial sector beyond its initial post-Brexit phase, ensuring it remains the world’s leading financial centre,” Omar Ali commented on the current situation.
But for now, Brexit uncertainty is benefiting the City of London’s rivals. For example, “Financial Times” in one of its recent articles announced that the process of hiring new managers of financial assets in Great Britain is practically paralyzed. Last year, employment in the UK investment sector, estimated at £8.5 trillion, remained virtually unchanged, and the number of fund managers in London increased by just 6% from 2016 (in comparison, in Luxembourg this figure increased with 31%). The total number of Irish equities, including investment funds and service funds, increased by 12% as early as 2016-2018, while the number of investment jobs in France grew by 9% during that time.
Britain’s investment management market, which employs around 40,000 people, is still Europe’s largest in absolute terms, but Brexit has made the City’s financial hegemony less compelling than it once was. The investment management sector in Ireland, including fund servicing and asset management, already employs about 16,000 people, the French equity sector employs almost 18,000 people, and in Germany – about 16,000 employees, writes the Financial Times.
The last month before the hard landing
The mass migration of financial institutions from Great Britain to the European Union is fully in line with the predictions made even before the British in June 2016 voted in a referendum to leave the EU. In particular, the largest British bank HSBC, even before the referendum, announced its readiness to transfer about a thousand employees from London to Paris, and the head of the American bank “JP Morgan” James Dimon claimed that about four could be transferred from Britain thousands of jobs.
By the spring of 2017, when Britain officially began its process to leave the EU, the big banks in the City of London were already off to a low start. According to Bloomberg’s sources, Bank of America, Standard Chartered and Barclays were planning to transfer some of their staff to Dublin at the time, based on considerations that Ireland’s regulatory framework matches that of the UK, plus the Irish capital is the only English-speaking financial center of the European Union. In contrast, “Goldman Sachs” and “Citigroup” take care of Frankfurt, where the headquarters of the European Central Bank and “Deutsche Bank” are located.
At the time, the Bruegel think tank estimated that Brexit could lead to an outflow from Britain to European jurisdictions of 1.8 trillion euros, with job losses in London estimated at 10,000 in the banking sector and around 20,000 in the financial services segment as a whole. As you can see from the latest data published by the UA, these predictions are close to coming true.
In the future, British financiers were guided by the hard Brexit scenario, which implies a complete rupture of relations between Great Britain and the European Union. For example, in February last year HSBC Group cited concerns about the impact of Brexit on its business as one of the main reasons for forecast loan losses for the year.
This was compounded by the growing problems of the Chinese economy – HSBC’s second largest market after Britain. Already in 2018, the group received regulatory approval to expand its business in France, where it decided to focus its main efforts on the post-Brexit EU market, as well as in the Netherlands and Ireland.
However, the British bank said London would remain the best location for its 39,000-employee global headquarters and that the impact of Brexit remained limited. But just a year later, this February, HSBC announced for the next three years the reduction of 35 thousand jobs worldwide (from 235 to 200 thousand people) due to a reduction in profits by a third. The impact of the coronavirus crisis followed, and according to the results of the first half of the year, the largest British bank reported a drop in pre-tax profits of 65%, and the price of its shares on the London Stock Exchange during this period fell by 40%. Among the factors that influenced such depressing results was geopolitical uncertainty – the lack of clear Brexit scenarios, in connection with which it was decided to accelerate plans to reduce staff.
British banks have been repeatedly urged to prepare for the worst by the UK’s financial regulator, the Bank of England. In June, its head Andrew Bailey, meeting with leading representatives of the banking sector, reiterated that the negotiations between London and Brussels may not be crowned with success.
In turn, bankers began to prepare their clients for such an outcome – thousands of British citizens permanently living in the European Union may become hostages to the impossibility of finding an alternative to a hard Brexit. As the London newspaper “Daily Mail” recently reported, British banks “Lloyds”, “Barclays” and “Coutts” have already started sending messages to fellow citizens about closing their accounts on December 31 – at the end of the transition period. This is due to the fact that in the event of a hard Brexit scenario, British banks will lose their pan-European license to provide financial services.
There is still time to reach a compromise. On October 3, Boris Johnson and European Commission President Ursula von der Leyen agreed to extend trade deal talks for another month, calling on both sides to step up their joint efforts.
Translation: V. Sergeev
#Money #finance #fleeing #Britain
