Financial Blog

Brexit could see one in five banking jobs leave London - study

The survey suggested that 20% of banking jobs could relocate from London, with Frankfurt emerging as one of the most attractive locations for financial services companies considering moving their business after Brexit.

Germanys economic stability, which was ranked the most important criteria by those interviewed, made Frankfurt the top venue, while its political stability, pool of qualified workers with specialist knowledge, and tax system also underpinned its attractiveness.

The fact that German not English is the main language spoken in Frankfurt made it less attractive, but this criteria was ranked as the least important by those polled.

Brexit Has Euro Outsiders Fearing Banking Fallout, Denmark Says

So far, all EU nations that aren't part of the euro club prefer to stay outside the direct jurisdiction of the ECB, though its reach stretches beyond the common currency union thanks in part to the pursuit of a single rule book for financial institutions under the auspices of the European Banking Authority.

Resolution Fund

Denmark has taken a wait-and-see approach to joining the banking union. Its banks don't want to contribute to a common resolution fund they fear would be used to shore up troubled lenders in southern Europe.

The ECB also wants to eliminate the more than 150 exceptions to uniform capital requirements that countries have adopted, a move toward standardization that, according to Berg, won't necessarily benefit countries outside the euro zone.

"Within the euro area, from the center, there is an attempt, which is understandable, to take out national discretions and to harmonize, because it's difficult to supervise across different national standards," Berg said. "To the extent that that policy also influences the EU rule-setters, that will present some challenges for us."

OPINION-Italy, or how not to deal with a banking problem

LONDON, July 1 (IFR) - Italy this week exploited the stormy aftermath of the shock UK referendum result, concocting its latest attempt at rescuing its banks while markets were distracted with more pressing matters.

Yet the news that the European Commission has authorised an Italian government plan to guarantee liquidity for banks in the event of a financial crisis in the eurozone is baffling at best, but mainly risible.

For months now, the Italian government has been desperately trying to fix its banking sectors crippling bad loan problem while avoiding sharing the burden with bank creditors.

Atlante, the cobbled-together rescue fund, has all but been exhausted shoring up Banca Popolare di Vicenza and Veneto Bancas equity raises, leaving nothing to complete its original mission: lifting banks bad loan burden.

Under the new scheme, a bank can ask the government to guarantee its bond issues, ensuring that it can raise money even in troubled markets. But the offer only applies until the end of this year, and only banks with solvent balance sheets will be eligible, according to Reuters.

The scheme wasnt Italys first choice, and comes after the countrys attempts to orchestrate a 40bn bank rescue were firmly rejected by the Commission, and rightly so.

But the new government guarantees will not solve anything. Funding, unlike in 2008/2009 and the 2011 sovereign crisis, is not the issue; the European Central Bank is providing plenty of that. It is a lack of capital that lies at the heart of the sectors problems.

That Italy is using Brexit and the potential fallout from it says a lot. Alarm bells should be ringing given its the only country to have taken such steps so far. Even in the UK, where you might expect banks to have been hardest hit, no such measures have been taken.

Even better, Lloyds and Santander UK have already accessed the bond market in a show of force. This is testament to the actions of the UK regulator, which has forced severe writedowns in recent years. Italy, on the other hand, was dawdling and is now stuck.

The banks share prices tell a million stories. UniCredit is down over 63% year-to-date, Banca Monte dei Paschi di Siena more than 68% lower and Intesa Sanpaolo off almost 46%. While the picture is far from pretty for UK banks, they have fared better, with Lloyds down some 25%, Barclays off 38% and RBS 47% lower.

There are many lessons that will be learned from the UKs decision to leave the EU, but one thing is sure: Italy will not be the poster child for how to sort out your banking sector. (Reporting by Helene Durand, Editing by Philip Wright, Julian Baker)

London banking will struggle to escape Brexit trap

The free movement principle of the EU means that all individuals of member states receive an EU passport. They can settle in any other EU country and enjoy the same rights and benefits as any other citizen of the host country.

It is perhaps less obvious that the EU passport also applies to businesses, including banks. If, say, an American bank has been authorised to be in Britain, it is automatically entitled to operate in any EU country. It is this quintessential element of EU membership that has enabled London to become the banking capital of Europe.

Now that the UK has voted for a Brexit from the EU, we dont yet know what kind of arrangements the two sides will agree. They may end up being more favourable than the total separation envisaged by Article 50 of the Treaty of the European Union. But unless the UK is still inside the single market, at least as part of the European Economic Area (EEA), this passporting right will be gone.

This is why there are widespread fears about how the banks are going to keep their main European headquarters in London, particularly those that are non-EU. There is likely to be a surge in requests for banking licences on the continent, even from British banks. Hence numerous international banks are reportedly considering their options. Substantial numbers of the Citys circa 700,000 jobs might shift.

Capital gains

The most likely beneficiaries will be the other main European financial centres Paris, Frankfurt, Milan and Madrid though smaller players will seek gains, too, including Luxembourg, Amsterdam and Dublin.

The European Banking Authority (EBA), currently located by the River Thames, will almost certainly be among the departures. It is one of the EUs three overseers in the financial services sector. With the insurance regulator (EIOPA) already based in Frankfurt and the financial markets regulator (ESMA) in Paris, Milan has emerged as the early frontrunner to provide the EBAs new home.

The global investment banks will probably incline to Paris, both because of ESMA and because there is already Europes second-largest market for trading securities in the form of Euronext Paris. HSBC chief executive Stuart Gulliver has indicated that 20% of his 5,000 investment banking staff could be bound for Paris, for instance. In a similar way, mutual funds and pension funds would find a natural location in Frankfurt, since they come under the EIOPA.

There is unlikely to be one big winner from any reorganisation. The 2008 financial crisis revealed major cracks in the eurozone, broadly dividing the north and south of the continent. Where in the past the major investment banks have tended to have just one major European headquarters, they might now decide to operate out of several smaller centres on the mainland and to take different strategic approaches for different parts of the bloc. This might be a suitable move for cautious new times, given the uncertainty that Brexit has created.

These players will probably retain a reduced British operation for similar reasons. We might also see European banks setting up in London that were previously able to service the UK market from the mainland. This at least means we are unlikely to witness a catastrophic mass migration from the Square Mile.

It is also worth emphasising that we are certainly not talking about all jobs. Within investment banks, for instance, there is a threat to the clearing services that London houses provide for trading euro-denominated financial instruments. French president Francois Hollande has already said that they cant stay in the UK. This wont affect the clearing of financial instruments denominated in other currencies, however.

Equally, it may no longer be possible to directly buy and sell the shares or bonds of EU-listed companies in London post-Brexit, but it wont affect the trading in other companies or other markets such as commodities. In some areas, such as derivatives trading, no longer having to live with EU regulations might even be an advantage albeit potentially making the markets more volatile, too. Also potentially less affected will be other merchant banking services, such as mergers and acquisitions.

On the other hand, UK insurance companies will no longer be able to offer insurance within the EU without a licence within one of the member states. I should also stress that the different sub-sectors of financial services may not all be protected if the UK ends up in the EEA instead of an automatic right to a full passport, the different areas it covers would need to be agreed.

Scotlands opportunity

If Scotland does vote for independence in the next couple of years, it could be a unique opportunity for luring banks to Edinburgh or Glasgow as has already been suggested. In particular, Edinburghs City is presently small but not negligible, hosting the headquarters of Tesco Bank and Sainsburys Bank, insurance firm Standard Life and a substantial amount of fund management.

Edinburghs financial district. Ross G. Strachan, CC BY-SA

The central bank of a new independent Scotland would be entitled to authorise banks to trade across the EU as soon as the new country was granted membership. This could engender a new Scottish enlightenment, attracting banks and investment firms from all over the world.

It certainly sounds better than the alternative in which Scotland leaves the EU with the rest of the UK. If the likes of Tesco Bank and Sainsburys Bank were interested in expanding to the single market, they too would have to establish operations elsewhere in this scenario. Scotlands financial waters could end up stagnant for decades as a result.

With this much at stake, the UKs formidable banking lobby will doubtless be gearing up over the next couple of years to make the best out of a very difficult situation. At this stage, however, it looks as though the EU passport will be lost unless the UK accepts free movement of citizens.

Pierre Sinclair de Gioia Carabellese does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

Pierre Sinclair de Gioia Carabellese, Associate Professor of Business Law, Heriot-Watt University

This article was originally published on The Conversation. Read the original article.

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