US
banks lay groundwork to leave London — reluctantly
Financial
institutions say retaining single market access could convince them
not to move.
By SILVIA SCIORILLI
BORRELLI 11/18/16, 4:24 PM CET Updated 11/18/16, 5:13 PM CET
LONDON — Four
major U.S. banks — Goldman Sachs, JP Morgan, Morgan Stanley and
Citigroup — have plotted out their exit plans after Brexit and
already have one foot out the door.
“Citi is planning
to move people to Dublin, while the other three are going to
Frankfurt,” one person familiar with the matter said. “At this
stage the discussion isn’t about moving thousands of people, just
hundreds; numbers will grow if single market access doesn’t
happen.” The source said the first to be moved will likely be the
banks’ derivatives trading teams.
Bankers say they
love London and don’t want to move.
“London is an
optimal choice for us. Any other city would be sub-optimal,” a
banker at one major U.S. firm said. However, those familiar with the
ongoing talks between the City of London, the British government and
EU regulators insist things will change sooner rather than later.
“Some jobs will
go, others will move and others will be created in Frankfurt or
Dublin instead of London — and it’s likely to happen between the
first and second quarter of next year,” the source said.
Given the skin
financial institutions have in the game and the persisting Brexit
uncertainty, none of these firms wants to be portrayed as rushing out
the door — especially if they can still lobby the government to get
a good enough deal for them to stay.
“Nobody wants to
make a bad decision by moving quickly with the amount of uncertainty
around. We will be ready to make a permanent decision once we have a
better idea of the direction of travel [a hard or a soft Brexit],”
Daniel Pinto, JP Morgan’s head of corporate and investment banking,
said in an interview.
Bank of England
Governor Mark Carney said Tuesday that lenders could start relocating
18 months before the actual British departure from the EU. That would
mean September 2017, if Prime Minister Theresa May’s plans proceed
on track and Article 50 is triggered early next year.
But according to
people close to the banks’ Brexit discussions, relocations could
start as early as next March, or June at the latest. Citi did not
respond to requests for comment while Goldman Sachs and Morgan
Stanley declined to elaborate on their plans.
A spokesperson for
JP Morgan said no final decision had been taken, but in the first
quarter of 2017 the bank will start “renovating and improving their
technology and infrastructure across offices in Europe.” The U.S.
banking giant, which was ranked the world’s top investment bank by
fees in 2015, has offices in 15 EU countries apart from the U.K.
Likewise, a Goldman
Sachs representative said they are still working through the
implications of the June 23 vote. “There remain numerous
uncertainties as to what the Brexit negotiations will yield in terms
of an operating framework for the banking industry. As a result we
have not taken any decisions as to what our eventual response will
be,” the spokesperson said.
Sources say Goldman
is trying to move its balance sheet from the U.K. to Germany before
moving its staff, but supervisors are reluctant to take on the risk
of operations carried out elsewhere. The ECB declined to comment.
Regardless, Frankfurt would be a logical alternative destination for
Goldman given it is already its second EU hub, employing 300 people.
Goldman has 5,000 employees in London.
For Citigroup, the
best option is Dublin where it already employs 2,500 people and has
the needed regulatory approvals to carry out business, a source said.
The group has denied the claim, according to an Irish news report.
Other EU financial
hubs, including Frankfurt, Paris and Milan, are courting the banking
behemoths.
“Several elements
play in Frankfurt’s favor, and not only the proximity to the
European Central Bank and its banking authority … its central
position in Europe, an effective infrastructure, a stable political
and economic environment, an efficient administration, regulatory
stability, an excellent education system and research facilities as
well as a good standard of living,” a spokesperson for the German
finance ministry said.
On Monday, Thomas
Steffen, a senior official at the ministry, said that after the EU
referendum they had registered an increasing number of queries from
U.K.-based banks. Milan Mayor Giuseppe Sala also said that local
authorities are working with the government to create incentives and
improve the business environment for banks to set up their
headquarters in Italy.
One senior U.S.
banker pointed out that both Frankfurt and Milan have significant
limitations. “Aside from office space challenges, how do you move
entire families, perhaps where the other spouse doesn’t work in
banking and doesn’t speak German?” the banker said. Italy’s
slow legal system, high taxation and complex labor market doesn’t
even put the country on many firms’ radars.
Hortense Goulard
contributed to this article.
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