The planning started the day after the EU referendum result, which led financial firms to draw up contingencies: what if the UK ends up outside the single market? Now, after prime minister Theresa May’s appeared to endorse the idea of a “hard” Brexit — a withdrawal not only form the EU, but also from the single market — London-based banks are making plans to storm the exits.
Their exodus will spell the end of London’s golden era as the financial hub of Europe, a reign that began with the the so-called “Big Bang” of the mid 1980s. Countless banks have used London for their headquarters, lured by Britain’s unique position as a member of the EU and the wealth of knowledge, the strength of its legal and other institutions, the language and the timezone.
Underpinning it all have been “passporting rights” — a licence that allows for firms that are based in one EU or EEA country to provide services to all the others, without having to set up additional headquarters and offices.
But all that is set now to change. Hopes that the UK would negotiate some kind of “Norway” model for its future relationship with the EU— having access to the single market in exchange for accepting free movement of people — have been dashed: May’s Conservative Party conference speech has ruled out such a deal. The UK is not “leaving the European Union only to give up control of immigration all over again,” she said. "And we are not leaving only to return to the jurisdiction of the European Court of Justice. That’s not going to happen.”
May has said that the trigger on Article 50 will be pulled in March of next year, giving the UK two years to negotiate its exit from the European Union. That means that come March 2019, when the UK will no longer be one of golden stars circling the EU flag, London-based banks that haven’t made other arrangements will find themselves outside the single market.
In last week’s Sunday Times, it was reported that US investment bank Goldman Sachs has already made preparations to move almost 2,000 highly payed employees out of the British capital in the eventuality of a “hard” Brexit.
“They need to have a structure in place that enables them to serve their clients across the continent”, Politico Europe’s financial correspondent Francesco Guerrera told me over coffee on Threadneedle Street, just a few feet from the street’s most famous occupant, the Bank of England.
Guerrera says there are two main issues the financial institutions are confronting: the geography of their withdrawal — where they should they go — and the operations they’ll have to uproot, namely, what absolutely needs to go and what can stay in London.
All this prepping is done in order for the banks to cut costs wherever possible and reduce the level of uncertainty for their clients.
Setting up a new branch or subsidiary in Europe takes time, Guerrera points out. The banks will have to find new office space and get through reams of bureaucracy in order to get their licence to practice.
HSBC has already said that it would move a fair share of its operations to Paris, where it already has some legal presence thanks to an acquisition it made in the mid-1990s.
One of the main challenges for the banks is that it’s very hard to move people. Executives and senior staffers might be willing to relocate to Paris or Frankfurt, but most below them are not. This further adds to the burden the bankers are having to bear, because soon countless human resource departments are going to have to send out job requests and sift through thousands of applications, draining resources.
Many European cities have been quick to jump at the new opportunities: Paris, which has long looked enviously at London’s pre-eminence, has offered banks an array of tools they could use to settle in the French capital, amongst which are English-language coaches. Even Italy has made an attempt to increase its visibility in the financial sector by bidding for the European Banking Authority (the EU’s financial regulatory agency) to move from London to Milan.
All this commotion may end up leaving a 75,000 people-strong void in the City, according to a study recently published by Oliver Wyman, an international management consultancy firm. It would also wipe out the £67bn the financial sector contributes to the UK’s balance of trade.
But none of this is likely to sway the Government, which has built its plebiscitary mandate upon the issue of immigration control and its more bigger sister, national sovereignty — and leaving London’s global banks to call Europe’s estate agents and book the removal vans.