Global banks in search of a “New London” after Brexit.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
As global banks begin scouting for a new European base in the wake of last month’s Brexit vote, it appears that the City of London’s glory days as the world’s most important financial center may be numbered. City-based banks and hedge funds are worried about losing their passporting rights, which grant them full access to the EU’s financial markets. They’re also concerned that the UK might lose its special authorization to clear transactions in euros.
“In theory, extending third-country AIFMD passporting to the U.K. after Brexit should be straight-forward,” Matt Huggett, a partner at law firm Allen & Overy in London, told Bloomberg. “In practice, it will be a political decision with an uncertain outcome. Many managers would like to safeguard themselves beforehand and set up offices in places like Luxembourg and Dublin.”
In true beggar-thy-neighbor fashion, many of Europe’s most prominent capitals are bending over backwards to provide global banks with the perfect enticements to lure them away from The City. As the New York Times puts it, “The race is on to be the new London.”
Spain’s capital, Madrid, has spent the last couple of weeks frantically ruffling its feathers in an attempt to attract the attention of not only banks but also the European Banking Authority, one of the EU’s most important (but currently London-based) financial regulatory bodies.
It’s not as absurd as it may sound. Madrid already boasts the cheapest corporate tax regime in Spain and will no doubt be prepared to drop rates even further to accommodate some of the world’s biggest banks. As JP Morgan banking analyst Kian Abouhossein notes, office space in Madrid is also more readily available and cheaper (€27/sqm/month) than in the other prime locations competing to displace London as Europe’s financial capital: Paris (€67/sqm/month), Dublin (€52), Frankfurt (€40) and Amsterdam (€29).
But the price of commercial real estate is just one of many factors global banks are likely to take into consideration. The others, as New York Times points out, include:
English-language facility, (essential for attracting a global work force); a favorable regulatory environment, especially regarding employment; excellent transportation and communications infrastructure; availability of prime office space and luxury housing; good schools; good restaurants and cultural offerings; and finally, an intangible quality that includes a certain energy level and openness to an influx of highly paid, competitive City of London-Wall Street types.
There’s one other factor that The Times didn’t mention: proximity to the major seats of political, judiciary and regulatory power. It’s one of the main reasons why London, once the center of the world’ biggest empire, has served as one of the world’s top-three financial capitals for the last 200 years. It is also the main reason why, if the City of London does fall from grace, the biggest beneficiary is likely to be Frankfurt, which is already home to Europe’s most powerful financial institution, the ECB.
The fact that Germany also enjoys more influence over European economic policy-making than any other EU Member State would certainly be an added enticement for the world’s biggest financial institutions. Over 70% of respondents to a recent Ernst & Young survey said they expect Frankfurt to come out on top in the race to displace London.
But such a move is unlikely to be welcomed by many other European countries, especially those in the South where resentment over Germany’s influence over their economies is already running high. Nor is it likely to be welcomed by many in Germany who, as Bloomberg points out, are likely to witness a surge in property investment volumes, prices and rents, with Frankfurt emerging as the biggest “beneficiary”.
One city that is determined to steal Frankfurt’s thunder is Paris, whose government has promised to unfurl the red carpet for the City of London’s highest paid bankers while seeking to grow as a clearing center. Prime Minister Manuel Valls recently announced he would do his best to make the domestic business conditions the most attractive in Europe: The measures, he said, will include income and corporate tax cuts.
“It is a gesture of trust from France towards those that want to come to work here, to innovate, to create jobs in France and to participate in our country’s outreach,” he said.
Valls’ words could not clash more starkly with the combative stance France’s President Francois Hollande took against global finance before winning national elections in 2012. “I’ll tell you who my opponent is, my true opponent,” he said at the time. “He has no name, no face, no party. He will never run for office. He will not be elected. And yet he governs. My opponent is the world of finance.”
Now, Hollande and his government are doing everything within their powers to lure that same faceless, nameless enemy across the English Channel to Paris. But it’s unlikely to work: the banks know that if they were to move their European base to Paris or even Frankfurt, they could probably expect a lot more government interference in their operations.
Indeed, no city — not even semi-official tax havens like Dublin, Amsterdam, or Luxembourg — can offer financial institutions what the City of London currently offers them: an autonomous city within a city where banks and hedge funds can engage in activities that would be unimaginable in most other jurisdictions, including New York and Chicago. Oh, and it also serves as the beating heart of the world’s most extensive network of tax havens, where financial secrecy is (almost always) guaranteed.
In the absence of regulatory oversight, London has been home to just about every major global financial scam and scandal of the last decade, including Libor, Forex, MF Global, the London Whale and rampant gold and oil-price rigging. It’s the sort of gig that the world’s biggest banks and hedge funds do not want to give up without a fight, as JP Morgan Chase CEO Jamie Dimon amply demonstrated last week when he suggested that, to avoid banks like his having to up sticks, the votes of over 17 million British citizens may need to be overruled:
“Maybe you can even reverse Brexit. There are always solutions to the problems, as long as you have the right people in the room.”
Whether that is what ultimately happens, time will tell. Certainly the UK’s newly formed government appears to be in no rush to begin the official process of decoupling from Brussels. In the meantime, one thing we can be sure of: the likes of Dimon are working tirelessly behind the scenes to get all “the right people” in the room. By Don Quijones, Raging Bull-Shit.
This is happening, even as all heck is breaking loose in Italy’s banking crisis. Read… Who’s Most Afraid of Contagion from Italy’s Bank Meltdown?
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Thing is, it is next to impossible to replicate 200 years of adaptation
Socialist France wanting to be the beating heart of capitalism? Yea, that’ll work.
Ignoring French taxes, employment laws and other socialist goof-ball stuff, have you ever seen a banker work just a 35 hour week?
The “Financial City of London”, within London, it autonomous?
Why and How did that happen?
Who then runs this “city”.
You will find some answers about the incorporated “City of London” or the “square mile” here:
http://wolfstreet.com/2014/11/08/as-luxembourg-takes-the-heat-the-worlds-worst-tax-haven-the-city-of-london-remains-hidden-in-plain-sight/
yes it has its own laws, police, taxing authority etc-it is separate from London proper
Oddly it was Patrick MacGoohan who first laid out and hinted about this in THE PRISONER back in 1967
The NWO,…Fabian branch!
This is where modern financial corruption was invented 300 years ago!
I’m 56 now in my life time I’ve seen massive changes witch is normal to some degree but the race to globalization to make this world a better place is having the opposite effect. I feel less freedom more controlled and over time my identity with my country is being robbed and I don’t think I’m alone if this is globalization I fear the future
what makes you think that it wasn’t planned that way from the beginning?
I have worked in the city..
back in the late 80’s early 90’s and it is a truly an eye opener even though I was a director of a corporate finance company based in Leeds when you start to meet people whose grandfather worked in the city and they have Lords and other people you never hear about who run 200 yr old companies with business cards falling out of their rolodex.of anyone anywhere with any serious influence.
They control hundreds of trillions and no one ever and I do mean ever tells then what they can do or cannot do.
One time a contact we did business with, a hereditary peer, I will just call him Sir Adrian, he was the Chairman and CEO of a bespoke financial boutique that was started over 150 years earlier, made call to get a meeting with Cecil Parkinson who was minister for trade and Industry at the time and Norman Tebbit at the House of commons the next day.
I expressed amazement that he could so easily fix something like that.
You could see that it was beer in doubt in the slightest in his mind.
“Oh they know which side of the bread the butter is on” was all he said.
End of the matter.
Can you imagine that happening in any other capital
The City…… a club, like no other club in the world and foreigners in Paris and Frankfurt or even Geneva or Madrid do not join, they are guests only and the thought of that club moving from London is the most ridiculous idea I ever heard
I agree. London will never lose it’s status and now with them leaving the EU, they will no longer be strapped by unnecessary regulations. Also banks in Europe are in trouble because of negative interest that is destroying their business model and the economy as a whole. Brussels is getting ready to add more regulations plus a transaction tax which will only bring the collapse of the EU much faster. Brussels needs cash so the bureaucrats can still have a job and they don’t care which business or economy they collapse! It is interesting that a record number of European banks have set up branches in the US and they are bringing capital with them. Most see the writing on the wall in continental Europe!
Paris sounds perfect!
We all know how much the French love the English language…
Maybe some Quebec style sign-age .. :)
Their attitude goes back a LOOONG way!
A book written in the year 1300 in Middle English called the Cursor Mundi puts it this way:
“Seldom was, for any chance, praised English Tongue, in France.”
There are a lot of very good reasons why London enjoys the status it has, some of which are mentioned in the article and comments above. One of the key ones is trust – which is perhaps ironic given the often nefarious activities “The City” is up to! I’m a Brit, hardly “wealthy” and definitely a City outsider, but and an experience may be of interest. A few years ago when GBP:EUR exchange rates were great I imported a BMW from Germany to the UK, I paid a deposit but had 90% to settle on delivery a few months later. Not wanting to risk the rate moving against me I called my bank, who put me through to their forex desk in the City. A quick chat and I locked in a forward rate, effectively on a handshake – no contract note, no reference number, just a rate and a Euro amount. Many weeks later, and somewhat nervous because the exchange rate had collapsed, I called my bank to make the transfer, quoted the forward rate and the sum and after a few seconds it was honoured. Absolutely amazing experience – very British – your word is your bond. But let me ask a question to anyone suspecting Brexit is a bad move for the UK. If you were an institution established in the City, unless there was complete certainty that remaining in the City would mean the end to “business as usual”, would you really risk moving into the EU at a time when France and Southern Europe are potentially falling apart, or to Frankfurt, which would likely cause even greater political tensions between Germany and the rest of the EU?
I’m not sure if this article can be read from outside the UK but it’s worth trying – http://www.telegraph.co.uk/business/2016/07/03/french-plot-to-topple-city-of-london-is-foolish-bluster/
The City of London is not going anywhere. When I worked on Wall St. it was considered the center of the financial universe, but London was considered the bedrock. Good banking is all about trust. Would I trust my money to the Irish, no, to the Germans, no, to the French, no, to the Spanish, hell no. I could go on but you get the picture. The only country with a long history of sound banking is the UK.
The Brits aren’t just going to quietly give up their unique position. They will take whatever steps are needed to maintain their No1 spot. Brexit is a complication, no doubt one of many, but so what!
You miss one major point; a banker needs a big fortress, surrounded by a big moat, protected by a big army.
In the middle ages, Italian bankers were the gold standard. But then, kings had a bad habit of borrowing money, raising armies and taking the bankers captive.
You can substitute kings with revolution, war and occupation, social unrest, and so on.
UK proper hasn’t seen any of it since Oliver Cromwell.
In the middle ages the kings took the bankers captive!
for the last couple of centuries the City of London has taken Britain into captivity!
The bankers there make Wall Street look like amateurs in their swindles & embezzlements!
It is pretty well summed up by Lord John Acton who stated that
“The issue which has swept down the centuries & which will have to be fought sooner or later is the people versus the banks”
That day is upon us!
Very close. In fact Cromwell’s immediate successor, Charles II seized private gold lodged at the Treasury – security of gold storage was an issue, so the Treasury safeguard was valued – but that was the very last time, because under William III the Bank of England was founded, and merchants swapped their gold for UK Government debt.
Greeks? :)
MF Global? I just watched a documentary about it and if the London subsidiary operation was mentioned I missed it. But apparently the US based MF Global on the orders of Jon Corzine did bail it out when withdrawals got heavy.
Forex? All forex, some forex? I see the Brit who posted about importing the Benz was happy. The financial outfit took the loss, which on a new Benz would have been quite a hit for an individual.
BMW
Nick,
You need to consider the role of “rehypothecation” in the magical disappearance of over $1.2 billion worth of missing MF Global customer funds (courtesy of Reuters; important part is in last paragraph):
“A report by Thomson Reuters Business Law Currents suggested that MF Global and other firms exploited an international gap in collateral rules and may have made highly leveraged investments secured by customer collateral that had been re-hypothecated, or re-pledged as collateral for the brokerage’s own investments. It said the funds may have been available to help finance a $6.3 billion bet on euro sovereign debt.
The European debt trades pushed MF Global into bankruptcy, after regulators pressed MF Global to increase its capital and investors became spooked.
U.S. regulators allow prime brokers to re-hypothecate customer collateral up to the value of 140% of a customer’s borrowing.
In the United Kingdom, however, firms have no set limits on the re-pledging of collateral, although individual limits can be negotiated by an investor, such as a hedge fund.”
Read more here: http://blogs.reuters.com/financial-regulatory-forum/2011/12/21/mf-global-trustee-reviewing-firms-practice-of-repledging-collateral/
So the EU is going to purposely depress the entire Eurozone to “punish” the Brits for leaving? Brilliant. The British have more than a few cards to play if EU petulance reigns, however. Number one would be stiff tariffs on imported German and French vehicles. Less than 20% of the autos sold in Britain are made there.
But more than 80% of the autos made in the UK are exported and sold elsewhere.
it’s telling how the big city hotshots and politicians from all over Europe are trying to roll out the red carpet for the same banksters and their ilk who killed the economy in 2008 (and several times before). For sure they have learned nothing. At the same time they might as well pledge trillions of their own taxpayer money for the next bailout of these gambling addicts.
Amsterdam in my country is in the race as well, and one of their first official comments was to stress that foreign bankers are above the law when it comes to excessive salaries – the rules we have for this (supposedly to prevent too much risk taking) are only for the little people and not for those who don’t have any morals.
I see several people talking about ‘trust’ in the comments above. Sad, really…
All of these comments presuppose that this gigantic pyramid scheme of Central Banking will keep going on & on!
From where I am looking,..it appears to be ready to collapse under tons of leverage & derivatives.
The Old Order in Europe is about to go under & the NWO is up against tremendous pressure & will fail.
The U.S. Dollar,being the worlds reserve currency, will be the last holdout as big money flees to safety from all over the world,to the last safe refuge….America!
Looks like Hollande has got a lot of company.
We would welcome the business in the great city of Warsaw and you would be on the silk road at the entrance to the EU from Asia
I am sorry but nobody in Europe much respects the Poles. Prague would make a more likely choice or even Vienna but that is not going to happen……
Shortly after Britain actually leaves the EU, as opposed to just talking about it, China and Britain will make a joint announcement.
London will become the major access point to the Chinese market.
The British are simply dumping the old US empire, for the new Chinese empire.
Nothing personal, just business.
Not gonna happen and doesn’t matter even if it did. These banks are “multinational” anyway, which is code for they have no patriotic duty to any one country or society, only to themselves (insiders).
Yes they have ultimate control over your elected officials, who do you think finances political campaigns?
Who do you think financed all of the horrible modern wars of the 20th century?
The German Middle class did, by buying German Government debt and then getting wiped out over and over. They just never learn.
Compere currencies that have experienced mild inflation with currencies that have been destroyed and replaced several times. It’s the latter that produce the funding.
I am fairly sure The City of London is behind Brexit and pushing hard. All the(knowledgeable) fuss on the Continent is a negotiating ploy. No doubt some busy City Financiers did not like the storming of the Chunnel that caught their attention one fine day. Go long Helicopters and Luxury Ferries?
Generally your pretty close this time you are way off.
The Square mile does very well out of its Eu relationships it dosent want tehm rocked at all.
The Brexit vote is working, there is much talk in the EU about what is wrong in Brussels and immigration policy’s. Both major British issues.
Let us see what the cooler European Autumn brings.
What the Eurocrats in Brussels spew, and what finally happens, are so frequently, very different matters.
I like to be a contrarian d …look things over from that viewpoint and then compare… I always am Hoping we don’t have the end of fiat as all others have ended, but I put my trust elsewhere :)
May knows what she is doing.
You get the reigns of power.
You, isolate, neuter, or eliminate, you opponents.
Then put the brakes on the “Runaway Train”.
In a matter of hours she has done all of that.
No article 50 until 2017 at the earliest.
And Dimon is talking about the right people in the room already.
May needs Corbyn gone, and a strong pro EU Labour leader, NOW!
Methink’s I should increase my bet, that Brexit, a non binding Referendum, never happens.
Interesting perspective. I have the gut feeling that you may be right, given how things are evolving.
Thank You.
In a sense, you have it. Remain predicted that Leave would lose. Then they predicted a win for Leave would be a disaster. Currently they are claiming that Leave has been a disaster. Next they will re-define Brexit in such a way that it does not happen.
There are some basic economic issues that can’t change, simple because of geography and history. When we leave the EU and those things don’t change, the cry will go up that we have not “really” left.
Thank you similar to my thinking.
The Brexit is going to be used as a weapon to Force change in Brussels or it will happen to the detriment of all.
Bottom line.
Britain is to large a segment of the EU Budget Contribution’s and Trade to be allowed to walk. I ssues get resolved or all suffer greatly.
What is the point of “Brexit” If Britain still has to allow “freedom of movement” to get trade access.
I like the quote “The race is on to be the new London.” because it has never *not* been on. If you read some Banking and Finance history, Paris and Frankfurt have been trying to take business away from London since the mid-nineteenth century.
One theory for why it has never worked is that there is a minimum of political interference in the London markets, and quite a lot in the other two cities.
Before the Great War, for example, Imperial Russia would have to float their loans either in Paris or Frankfurt, depending on how far in favour they were with Imperial Germany.
By the first decade of the 20th century, they borrowed mostly in Paris, which meant that when Imperial Russia fell, over a million French investors were left with worthless Russian Bonds.
By contrast, the UK Government did not interfere in the floating of stocks and bonds on a political basis. In fact, they rarely even intervened to protect the interests of investors. Sending a gunboat to enforce the terms of a debt was very unusual.
And has anything much changed? The ECB now bails-in investors in Cyprus, withdraws liquidity from Greek Banks to force the hand of the Greek Government, proposes financial transaction taxes, and gives complete sovereign immunity from national law to the ESM.
What Bank or Hedge Fund is going to be eager to get mixed up with that?
Brexit, and leaving the EU, is the *best* step forward for many years. The EU is a bloated failing bureaucratic nightmare that’s ruining economies and countries. Everyone who works in Brussels admits its a totally selfserving gravy train.
In short, Brit taxpayers pay in 3x more than comes out. But at least we get EU burocratic rules to make our lives more difficult.
The Remainers are notorious for shouting down reasoned argument, ignoring facts, and buying Apple products!! Globalization benefits the already-wealthy and takes jobs away from the poor.
The city of London doesnt really have many choices. The US, where buildings/institutions get blatently demolished and the sheep get fed nonsence lies about terrorists. PIGS countries where the laws change daily!!!! (i currently live insuch a place). Northern europe where they have *almost* the same to offer as London…
As pointed out above, China is the future. They will own the world. Already they’ve claimed the South China Sea, like Tibet, and no one can do anything about it. So we all better get onboard with their money making schemes…