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Countdown to Brexit: 17 Days - As Parliament debates, the UK economy and British taxpayers…

13 Mar 2019

17 Days - As Parliament debates, the UK economy and British taxpayers are Brexit losers with outpouring of funds and jobs now 'Unstoppable'. 

Theresa May is looking to reverse the overwhelming opposition to her Brexit ‘deal’ – flying to Strasbourg at no notice - and denying MPs time to consider the detail of the wording on ‘Meaningful Vote 2’ ahead of today’s debate.

What seems to have escaped the notice of politicians through the rhetoric as try to outmanoeuvre each other, is that the amount ‘wealth’ that could have been generated by the UK as a nation has been savaged by their collective approach Brexit - irrespective of how it now plays out. It is, quite simply, too late to repair the damage caused by the way that the Government in their handling of the Brexit negotiation process.

The ‘bottom line’ is that every UK taxpayer – personal and corporate – faces increased tax-bills to cover the shortfall.

Present estimates forecast a reduction from just one industry sector alone - financial services - of 1% of the total revenues presently collected by HMRC.

Financial services – heavily concentrated in the City of London - account for 6.5% of Britain's Gross Domestic Product (total wealth created in the UK). They pay tax on the profits made.

The big winners are other European banking hubs – and consequently their national economies.

At this late stage, businesses – including some of the world’s biggest investment banks - will not reverse their plans to shift billions of dollars - and thousands of jobs - out of the UK - even if Britain ends up staying in the European Union - according to Financial News.

In a hammer blow to the UK, at least eight of the largest investment banks in London - including Bank of America, Merrill Lynch, Citigroup, Goldman Sachs and JPMorgan - have all said that they will shift a “significant proportion” of their operations to Europe - irrespective of the outcome of Brexit.

The move will harm the City of London’s status as a global financial centre. Banks have already begun moving - and are now finalising preparations to complete their moves.

Deutsche Bank is reportedly set to shift €400bn from its UK balance sheet to Frankfurt - while JPMorgan will move €200bn to the German city.

“Everything is timetabled, and once the plane is on the runway, it’s not going to be called back,” said a UK head at a large investment bank based in the City.

The head of investment banking at another company with a significant UK presence said there was no chance that its plans would be reversed. “We have spent money on this, we have a structure that we like. The staff we have moved out would not go back to London."

Brexit has already cost the top 10 investment banks at least £1bn in preparations for the UK’s impending exit from the EU. This figure could increase - and the shift towards Europe means that London will become a much smaller financial centre - whatever the outcome of Brexit.

“You cannot put the genie back in the bottle,” said Andrew Gray, global head of Brexit for financial services at PwC, the accountancy firm. “Banks have committed to a business model with regulatory bodies. Not to deliver on those plans would be problematic.”

“London has permanently lost market share,” added a chief executive of an international bank with a significant presence in the UK.

Good governance alone dictates that businesses must plan for all eventualities – and Europe offers certainty should the outcome in Parliament end in deadlock and trigger a second referendum or even a general election.

British Prime Minister Theresa May is facing a second defeat for her Brexit deal thrown – after losing by 230 votes in January. We have reported on the increasing odds of a no-deal Brexit ‘by accident’ in 17 days’ time – given the fragile chain of events that has to work perfectly to avoid Britain leaving the EU without a deal.

The City's largest investment banks have been planning for a worst-case scenario - under which they would lose access to the single market on 30 March – for over 2 years - in parallel to the political negotiations. Their plans now have a momentum that it is impossible to stop – let alone reverse.

“London would have been the natural choice to hire new bankers. Now, after the investment we’ve made in Europe, if someone leaves in the UK or we want to recruit someone, we’re just as likely to base them in Frankfurt or Paris,” said one European chief executive of a US investment bank.

Banks are unlikely to move people back in the event Brexit is overturned, said Jenni Hibbert, global practice managing partner at the recruitment specialist firm Heidrick & Struggles: “If they do, it won’t happen overnight - given the cost and effort involved”.

The damage inflicted in the Square Mile will be permanent, said another head of investment banking. “London as a financial centre will remain - but will be severely diminished.”

The viewed from Europe confirms the situation. We have reported on the how cities across Europe are welcoming the Corporate migration with open arms. Dublin, Amsterdam, Paris, Frankfurt Brussels and Dublin are actively working to absorb financial services and hi-tech business from Britain.

One Frankfurt lobby group has claimed that between €750 billion to €800 billion ($911 billion) in financial assets and 10,000 jobs will move to the German city by the time Britain leaves the European Union on 29 March.

In addition to the direct loss of taxes presently paid by financial services to the UK coffers, there is a bigger picture impact on investments in the wider British economy. “I don't believe Brexit can be a trigger for a financial crisis or a banking crisis," said Sergio Ermotti, CEO of Swiss investment firm UBS in an interview with Bloomberg, "but it could undermine investments - and trigger maybe a slowdown in the economy. That's clear."

And that's just financial services. A recent Parliamentary report announced that the UK had lost out on €5 billion ($5.7 billion) in infrastructure funding in the past year. And so it goes on.

Summary of the financial services exodus to date:

  • Goldman Sachs, JPMorgan, Morgan Stanley, and Citigroup – each a US banking giant - have because of Brexit moved 250 billion euros ($283 billion) of balance-sheet assets between them to Frankfurt.
  • Bank of America is spending $400 million to move staff and operations in anticipation of Brexit - and is trying to persuade London staff to move to Paris.
  • Barclays has permission to shift assets worth £166 billion ($216 billion) to its Irish division. Barclays is set to become Ireland's biggest bank.
  • BNP Paribas, Credit Agricole, and Societe-Generale have opted to transfer 500 staff out of London to Paris.
  • UBS has chosen German financial centre Frankfurt for its new EU headquarters.
  • Credit Suisse is moving 250 jobs to Germany, Madrid, and Luxembourg; and $200 million from its market division to Germany. In December Credit Suisse told its wealthiest clients to “hurry” and move their money out of the UK before Brexit.
  • Deutsche Bank is also considering shifting large volumes of assets to Frankfurt as part of its Brexit plan.
  • HSBC - Europe's biggest bank - has shifted ownership of many of its European subsidiaries from its London-based entity to its French unit.
  • Commonwealth Bank of Australia - Australia's largest bank by assets has set in motion plans to base around 50 staff in Amsterdam - and has applied for a banking licence in the Netherlands.
  • Australian lenders: Macquarie, Westpac, and ANZ - are in talks to move operations to Dublin and continental Europe.
  • BrokerTec - Europe's biggest ‘repo’ trading venue is moving to Amsterdam from London – meaning that $240 billion a day repo business is leaving the UK.
  • Over 100 UK-based ‘asset managers’ and funds have applied to the Irish central bank for authorization in Ireland.

Background

According to the latest statistics from the House of Commons Library: the financial services sector employed 1.1 million people in the UK in 2017 - and contributed £119bn to the UK economy, or 6.5% of total economic output.

EY - the accountancy and consulting firm – published the results of a survey indicating that 7,000 jobs could leave London:

Staff moves are already underway at large investment banks.

Goldman Sachs, which eventually plans to move 700 jobs to Europe because of Brexit, has shifted around 80 bankers to the continent as part of a broader push in region, while up to 20 fixed income sales staff have been relocated to Paris.

Morgan Stanley plans to have 50 bankers in Frankfurt as part of initial relocations

Deutsche Bank, BNP Paribas, Credit Agricole, Societe Generale and UBS have all asked staff to move.

This article first appeared on the website of Brexit Partners (www.brexit-partners.com).

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