Hard-Brexit Fears Begin to Rattle the “City of London”

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The crashing pound as the “de facto opposition” to the government.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Out of all the mist surrounding the UK’s future trading relationship with its biggest trading partner, the European Union, one thing is gradually becoming clear: as things currently stand — and they could shift — if Brexit is to genuinely mean Brexit, as British premier Theresa May insists, it can only mean one thing: a hard, clean Brexit.

In other words, the UK will leave the EU without any new trade agreements with the EU in place.

The alternative — a so-called “soft” Brexit — would imply having to accept full freedom of movement for all EU citizens in return for some form of privileged access to the single market. Given that regaining control of UK borders was one of the key issues that swung the referendum in Brexit’s favor, such a proposition is unlikely to sway British voters.

Nor, for that matter, would all the extra add-ons, including having to remain subject to the vast bulk of EU regulation as well as continue paying into its budget.

Under a soft Brexit, the UK would essentially continue to face almost all the restrictions, impositions, costs, burdens and other disadvantages of being in the EU while wielding even less influence — as in no influence at all — over how arrangements might change in the future. As such, the only option that offers the UK any hope of self-rule in the foreseeable future, which was ultimately what the referendum vote was all about, is that of a hard or clean Brexit.

And that could be very bad news for the City of London.

Thanks in no small measure to its privileged position as global intermediary between the European and global currency markets, “The City” has enjoyed unbridled growth and success in recent years. It is home to almost one-half of the entire global interest-rate OTC derivatives market, compared to 35% in 2001. Its share of global forex turnover increased from 33% to 41% between 2001 and 2014. And its share of global hedge fund assets doubled, from 9% to 18%.

Its dominance of the EU’s financial industry is even more pronounced, as the FT reports.

Half of the UK’s trade surplus in financial services — worth some £18.5bn in 2014 — comes from exports to the EU… It does 78 per cent of the EU’s foreign exchange business and 74 per cent of over-the-counter interest rate derivatives; 59 per cent of international insurance premiums are written in London; and 85 per cent of the EU’s hedge fund assets and 64 per cent of private equity assets are managed in the city.

Thanks to Brexit, much of that is now under threat, prompting serious cause for concern not only for the UK economy, which has grown hugely dependent on the financial sector, but also for the global banks that have made the City of London their favorite home from home. As WOLF STREET reported before the referendum, those banks would much prefer to continue operating under The City’s soft-touch regulation than have to disperse their operations across European cities such as Frankfurt or Paris, where they can probably expect a lot more government interference.

When it comes to financial secrecy, no European jurisdiction – not even Switzerland, Ireland or Luxembourg – can hold a candle to the wholly autonomous City of London, one square mile inside the nation’s capital that for centuries has existed as an ancient, semi-alien entity lodged inside the British nation state.

For the big banks and broker dealers, London is paradise on earth, from which they’ve been able to cook up just about every major global financial scandal of the last decade, including Libor, Forex, MF Global, the London Whale and rampant gold and oil-price rigging. Barring the occasional financial slap on the wrist from the U.S. Justice Department, the banks have walked away scot-free each and every time.

But now Brexit could end up placing the whole thing in jeopardy, especially if the EU refuses to allow the City’s banks, asset managers, and insurers to continue “passporting” their services from London right across the EU, as Jens Weidmann, President of the Bundesbank, recently cautioned would happen.

The response of the banks has been to dust off Project Fear. Take, for example, Daiwa Capital Markets’ recent forecast that the pound sterling’s flash crash last week was merely a portent of what lies in store for the British currency, whose performance it lumped together with the currencies of Angola, Sierra Leone, Nigeria, Venezuela, Mozambique and Suriname — “a rogues’ gallery of countries facing, variously, war, disease and economic collapse”:

The harder the Brexit, the more severe the economic damage will be. Certainly, for foreign investors, the UK now looks a much riskier place to put your money, putting further significant downward pressure on the currency.

British megabank HSBC went a step further, arguing that the British currency, once a “stable and relatively simple currency,” has become a “political and structural currency.” In other words, it’s fair game for global speculators. According to David Bloom, HSBC’s global head of FX, it is now the “de facto opposition” to the government’s policies.

Despite all the fear mongering, it’s not all necessarily doom and gloom for the square mile. As The FT points out, there’s an “underlying confidence” that London will adapt, as it has done for centuries, even if it does lose some business. It’s already the world’s biggest offshore yuan center after Hong Kong. According to Xavier Rolet, CEO of the London Stock Exchange Group, in 2016, it listed more Dim Sum bonds than the rest of the world, excluding Greater China itself. London is also the leading venue for Masala bonds.

Even if there is a hard Brexit, the fallout for The City may not be as severe as some are suggesting. According to a new report published by the financial consultancy Oliver Wyman, in a worst case scenario the City could lose 75,000 jobs — 13% of the total. The most vulnerable areas would be clearing, insurance and investment EU-related investment banking. That would hurt, but it would be survivable.

And there’s still a good chance that Brexit, whether hard or soft, will never happen. It faces fierce opposition from a broad coalition of some of the most powerful forces, including the EU’s ruthless bureaucracy, the ECB, the global corporatocracy and the City of London.

There’s also the possibility that by the time Brexit negotiations actually begin in March 2017, Europe’s institutions will be in such disarray that their priorities may well lie elsewhere, such as trying to keep their blooming banking crisis under some kind of control. By Don Quijones, Raging Bull-Shit.

So the zombification of EU banking system gathers momentum. Read…  Reek of Desperation Surrounds EU Banks, Regulators Prepare for “Derivatives Clearing Crisis”

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  40 comments for “Hard-Brexit Fears Begin to Rattle the “City of London”

  1. October 11, 2016 at 4:01 pm

    I cannot speak for Londoners or British in general or even Europeans for that matter – – –

    Speaking only for myself, the death of Parasite Paradises like London or the elite Parasite Paradise of NYC, and even Washington DC ( to name the worst of the worst ) – – – such a death can only be a good thing for me and those I care about.

    Parasite Paradise is the nicest term I could think of to describe those London Pond-scum sucking vermin, a plague upon the entire human race.

    It’s time London – – producer of nothing but fraud – – died.


    • WorldBLee
      October 11, 2016 at 8:02 pm

      The UK economy may be dependent on the financial sector, but those benefits don’t spread beyond London. While the financial sector may be paying taxes, I wonder if the huge increase in real estate prices that makes the cost of living higher for everyone sucks out more income for regular people than they get back in government spending gleaned for taxes on the financial sector.

    • Petunia
      October 12, 2016 at 10:02 am

      I take exception to you calling London, Parasite Paradise and scum sucking vermin, a plague upon the entire human race. That title rightly belongs to Wall Street. They worked hard to earn it and you can’t have it.

      • October 12, 2016 at 10:16 am

        A very nice laugh this morning.

        Many thanks !


      • d
        October 12, 2016 at 10:47 pm

        Further London is the model for Immigrant society’s Particularly America, and has been the refuge for citizens seeking shelter from the wars of Europe and beyond, since the Roman’s stole it.

        Anybody who knows anything about it, knows it isnt very English at, all genetically.

        It was originally named Hadrian’s crossing. As that is the point it was built around.

        Colchester, was the Southern seat of power, at the time.

      • October 13, 2016 at 8:23 am

        The City of London and Wall Street are run, owned and controlled by the same Tribe.

        • Petunia
          October 13, 2016 at 9:50 am

          The west has been colonized by the Tribe.

        • d
          October 13, 2016 at 10:01 am

          Who are you alluding to by

          “The Tribe”

          This is a common Euphemism for “Jew”, in a Racist Negative.

        • October 13, 2016 at 10:04 am

          I wasn’t sure about that. I’d like to have clarification too.

        • d
          October 13, 2016 at 10:16 am

          Thank you.

  2. capt.harry
    October 11, 2016 at 4:43 pm

    business & capital goes where it is treated best & that’s not the EU, long term a clean brake from the EU has to be beneficial

    • Chicken
      October 11, 2016 at 6:38 pm

      Exactly, the EU is the root cause for concern here. More likely they’re coming nearer the end of their rope than London, British financial institutions aren’t without brains but they are very sneaky and deserve similar respect as a venomous snake such as a cobra.

      Don’t be fooled!

  3. Chicken
    October 11, 2016 at 5:13 pm

    I suspect London embraces Brexit, just no outsiders were privy to the memo.

    Let Germany and her financial institutions be responsible for paying off the EU credit card when it comes due (any minute now?).

    The horse always comes before the cart and the citizens walk tethered behind that cart.

    • Bookdoc
      October 11, 2016 at 8:52 pm

      That’s what I think. By severing itself from the EU, Britain may avoid part of the catastrophe that is coming. One EU bank after another is having problems and we’ve only heard about the ones that are too big to hide any more. Hard to say whether it will be Germany, France, Italy, or Spain that will completely crash first but the rest will cascade. I may be crazy, but I think that is coming.

      • Chicken
        October 11, 2016 at 9:21 pm

        Italy IMO, but given I don’t know what I don’t know, Germany would be my 2nd choice.

        Wait and see, I guess. Interesting how far out on the curve negative rates have been.

        • nick kelly
          October 12, 2016 at 12:33 pm

          I’m not going to bother sorting through all the usual, but Germany crashing? Are you kidding?
          Germany- the world’s number one exporter in dollar terms?
          Number two after Italy as most likely to crash?
          Not Spain- with more empty condos than the US and 25 % unemployment? And no government, and a possible civil war AGAIN over Catalonia secession?

          The only thing that keeps the EU going is Germany.
          Yes DB may be the biggest problem bank ( largely as a result of American influence I understand) but Germany CAN bail it out-
          (take a look at the bill for German re-unification)

          Germany is stalling re: DB for purely political reasons- including negotiations over the US DOJ opening bid of 14 Billion $ for a fine. (find!)

          If Germany left the euro- Italy, Spain, and Portugal can elbow aside Greece and start jostling for position at the IMF window.
          France? That is different- Germany will always bail out France- but that’s a long story.

          Germany would have problems of a different kind- a new D-Mark would immediately replace the US$ as the world’s hardest currency. Instead of the cleanest, quite dirty shirt, how about a nice new shirt?
          This would be tough on German manufacturing for sure, but they’ve been through it before and survived.

    • marty
      October 11, 2016 at 9:23 pm

      Agreed. Brexit probably was a City of London project.

  4. g
    October 11, 2016 at 5:24 pm

    Has no one heard Aesop’s fable about the little boy that cried wolf?

    • nick kelly
      October 11, 2016 at 5:52 pm

      Or the fable of the goose that laid golden eggs.
      London pays a third of UK taxes.

  5. ML
    October 12, 2016 at 12:23 am

    London differs from the UK. The City of London does not consist solely of British banks. There are many USA banks as well as other foreign banks. The percentage figures in the article need to be analysed by reference to the ownership of the banjs concerned, otherwise the wrong impression is formed.

    We voted for Brexit because basically the Brits don’t like foreigners dictating our lives. The City of London hasn’t evolved as a financial centre just so it can be used as a stepping stone. We Brits have considerably more credit than we are taken for.

    When the going gets tough, the tough get going.
    Just you watch and learn.

    • nick kelly
      October 12, 2016 at 7:31 am

      Speaking of tough- 30 years after Germany was rubble the UK tried to get an emergency loan from West Germany to avoid going to the IMF.
      It was about that time that the 15 th million VW Beetle rolled off the line, overtaking the record held by the Model T Ford.
      Meanwhile the UK motor trade was swirling the drain- in one famous year an Austin plant only had two weeks of production not interrupted by strikes.
      Fujitsu has just announced it’s leaving the UK- the Manchester unit is going on strike.

      • October 13, 2016 at 8:02 pm

        It is well to remember that a company almost always gets the union they deserve, and many of the “strikes” were fully justified because of working conditions and managerial attitudes. The workers knew they were building crap, but were told to “shut up” and build it any way, in a preview of the American experience with GMC and Chrysler.

        RE: … Fujitsu has just announced it’s leaving the UK- the Manchester unit is going on strike.
        Another example of the spoiled rich kid saying “it’s my bat and it’s my ball, and if you won’t play nice like I want you to, I’ll take them home.”

    • Robert Ogrodny
      October 18, 2016 at 3:48 pm

      You guys are all right. The whole mess begins and ends with the fiat Bankrobbers. And they transverse any and all jurisdictional lines anywhere it matters, and they cheat them all as much as possible, which the people really hate; but who almost always get to pay the bill for playing the fuckin’ game to begin with. Grrrrrrr. Tank the banks, hold and use gold when you can. MHO.
      Don’t tread on me.

  6. Realist
    October 12, 2016 at 12:38 am

    From an EU perspective it is good that the EU will get to of the British banks with all their problems as EU banks have enough with problems. I wonder how the big US banks will react if the City no longer has access to the EU market. After all, the Americans do use London as the place to do laundry so dirty that even US regulations balk.

  7. d
    October 12, 2016 at 3:47 am

    IF article 50 gets invoked in march 2017. Then it will be time to consider much of the above article. IF

    Before she can do that, she must enact:

    A new bill, to repeal the 1972 European Communities Act, that took Britain into the EU, and get it passed by parliament (a defacto Parliamentary debate, on “Brexit”).

    Then signed by the crown. (if the vote is not strong enough mumsy might say NO, or the lords may overturn it)

    The SNP will vote against, it as will much of labour, the independents, and troy rebels/in supporters, will vote against it, or not be present.

    Is she loses that vote, then logically, there must be an early election.

    If she campaigns for out in that election, look to an SNP, Lib Dem, and independents coalition with an, “IN mandate”. Then we are in 2018 with a new deck of card’s.

    As labour, under Corbyn, is unelectable. And UKIP is further imploding, as this is written.

    Running around in all this somewhere, is Europhile Blair. Talking of a return to British politics’s, tainted as he is. He can still marshal, large, “in forces” and he has plenty of dirty money to splash around now.

    People think this “Brexit” thing, is now a “fait accompli”.

    I think the big girl hasent even contemplated getting her microphone box off the shelf, for this one, yet.

    • nick kelly
      October 12, 2016 at 12:46 pm

      ‘Then signed by the crown. (if the vote is not strong enough mumsy might say NO, or the lords may overturn it)’

      Since some of your stuff seems to talk a good game, I don’t know where you come up with something like this.
      If Parliament’s literal beheading of the monarch some centuries ago didn’t settle the matter, forcing the 1930’s Abdication of Edward VIII did.
      The Lords have been purely advisory for most of a century. They have no power to overturn or veto.

      • d
        October 13, 2016 at 12:03 am


        “although it might face more opposition in the upper chamber, the House of Lords. “

      • d
        October 13, 2016 at 1:06 am

        “If Parliament’s literal beheading of the monarch some centuries ago didn’t settle the matter, forcing the 1930’s Abdication of Edward VIII did.”

        All the Puritan regicide scum, who didnt flee to what became America, where you call them “the pilgrims”, met very bad end’s.

        Some were hung, some beheaded some simply murdered, many were imprisoned in a jail in the marshes and simply starved to death. So that shows who ultimately ran the place.

        If Mumsy dosent sign it you, will have a constitutional crisis, and she can refuse.

        Edward had to go, as he was against both, church which he was head of, and parliament.

        The abdication was only forced, as he tried to flee in to exile, as the sitting monarch.

        Refusing to simply hold Simpson as his Consort, which he could have, to resolve the issue.

        He never really wanted to be king. And never worked at the office, the opposite of Mumsy.

        “The Lords have been purely advisory for most of a century. They have no power to overturn or veto.”

        They have the power to debate it, then send it back for modification, which could also prompt and election.

        Sending it back, is effectively, a veto.

        • nick kelly
          October 13, 2016 at 12:03 pm

          Not one word of a bill has been altered to satisfy the Lords. Their only possible influence would be to change the mind of a member of the Commons.
          Whenever a bill has been sent back it is returned.

          Ironically if ever there was one they would have loved to veto it would have been the bill to have a referendum on Brexit.
          The idea of the Lords having a veto would be laughed at by any citizen of the UK ( like myself)
          The idea of them trying to get one would mean their extinction by the Commons, hopefully only political.

          However your comment re: the Lords might be excused on the grounds that the UK has no written constitution and operates, as does its legal system on precedent. It can be difficult to understand how it actually operates de facto, because these things aren’t written down for the convenience of Martians studying political systems on earth.

          But this utter nonsense about the Queen not signing means you have not the slightest idea what you are talking about.

          When that idiot Sarah Palin was being prepped for questions on foreign policy, one put to her by her manager was: ‘relations with the UK have been strained over the invasion of Iraq. How would you help smooth this?’

          Palin: The Senator has a good relationship with the Queen and they would sit down and …
          Manager, puzzled, interrupts: The Queen doesn’t make decisions in the UK.
          Palin, puzzled: Who does?
          Manager: the Prime Minister

          Is it logically impossible for the Queen to not sign a bill, in the same way it’s logically impossible for 2 and 2 to not equal four?
          Of course not. The Queen could summon PM May to the Palace
          and shoot her.
          The British monarchy has had its ups and downs. When Victoria
          was crowned, it was an object of much ridicule, including from the press and upper classes.
          In the getting on to three- quarters of a century that Elizabeth II has been monarch she has above all cultivated and reinforced the duty of the monarch to be above politics.
          Labor PM’s have said about the weekly tea: “You can say what you like because you know it’s not going to be repeated”

          But I’m passing the baton. Maybe there is another UK cit out there who wants it- but please note the topic is not the desirability of the monarchy.

          Here I’m going to pass the baton so to

        • d
          October 13, 2016 at 9:32 pm

          England does not have a unicameral system the lords have the power of an upper house and the queen has the same power a her Governor generals to not sign legislation.

          Not signing legislation cause huge problems hence it is not done very often however it can be.

          There was no reason not to sign the brexit referendum.

          The people can not be denied their wright to voice their opinion. It would have been stuipid of her not to sign said.

          A lot of legal mind’ are saying what I am. This is not a usual situation so the normal the priminster gets, if they get the votes in commons, does not apply. thats why they are referred to as the “Common’s”

          Only a fool who does not understand what can be done would deny this.

          Check, nothing becomes law, until it is signed by the crown.

          Check, the Crown can not be compelled to sign.

        • nick kelly
          October 13, 2016 at 7:38 pm

          Typo: is it logically ‘impossible’ should read ‘possible’

        • nick kelly
          October 13, 2016 at 8:06 pm

          Sorry – first version was correct.
          Hopefully anyone who’s tried to deal with questions like ‘what if reality is only apparent’ will sympathize.

          If any one wants (sort of) amusement, post this idea of the Queen maybe not signing a Brexit bill on the Guardian.

        • d
          October 13, 2016 at 9:35 pm

          So your a guardian reader, than explains a little.

  8. c smith
    October 12, 2016 at 8:59 am

    “…the UK will leave the EU without any new trade agreements with the EU in place.” How is it that the entirety of international commerce came to be controlled by state entities? Why can’t, Mercedes, for example, simply sell a vehicle to a British citizen (and pay whatever taxes are involved on the proceeds) without a formalized “agreement” between the EU and Britain? THIS is the problem, and it seems to me that Brexit is the first step to solving it.

    • nick kelly
      October 12, 2016 at 12:50 pm

      Are you advocating for world free trade? Oh you’re going to have fun at this party!

  9. Lars
    October 12, 2016 at 10:07 am

    How did The City make out with the opening of the Shanghai Gold Exchange ? Did they lose market share in gold trading. Did they have to change their gold quote prices to be more in agreement with Shanghai prices. Would these be major reasons for why the Yuan is under pressure now, as the ‘financial war’ against China is becoming a gathering storm. I’m unsure of where to find this kind of information.

    • nick kelly
      October 12, 2016 at 1:08 pm

      Somewhere in the history of these comments ( I think it’s this site) a guy describes importing a new BMW (or Benz?) just when the pound is looking iffy (!) and ready for a big hit.
      So he phones a bank that trades currencies and the guy says roughly: ‘you want to lock in 15,000 pounds at X? Done.’
      All verbal. Re: only 15K -I think this was in the 70’s
      And the pound does take a big hit. The guy is a bit nervous but no problem- the bank takes the loss.
      You don’t get this reputation overnight.
      Shanghai has some distance to go- although it could be entered for most improved student.

    • Sadasivan
      October 13, 2016 at 8:17 am

      You may try the following sites for more info,among the many available:-
      kingworldnews, http://kingworldnews.com/

  10. Sound of the Suburbs
    October 12, 2016 at 12:31 pm

    The City’s USP – financial cess pit of the world.

    You can’t take that away.

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