Corporate Brexodus Begins as “No-Deal” Brexit Looms

Potential for ugly consequences, intended or otherwise, is rising.

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

Construction and infrastructure giant Ferrovial has announced it is moving its international HQ from the UK to low-tax haven Amsterdam because of Brexit. The Spanish firm, which owns a quarter of the UK’s busiest airport, Heathrow, and runs its US, Canadian, Polish and UK operations from Oxford, says it needs to keep within EU legislation after the UK leaves the EU.

Airbus issued a stark warning at the end of last week that it may also consider abandoning the UK over Brexit, its strongest alert yet over the potential impact of Britain’s departure from the EU. A withdrawal without a deal would force it to reconsider its long-term position, potentially putting thousands of British jobs at risk, it said.

At the same time investment in Britain’s car industry has shrunk by half to the lowest figure since the financial crisis, according to figures from the Society of Motor Manufacturers & Traders (SMMT). In the first six months of 2018 investment in new models and factory improvements clocked in at £347.3 million, compared to £647.4 for the same period in 2017. BMW has warned that it will close all its UK plants in the event of a hard Brexit.

What companies, both domestic and foreign, want is greater clarity regarding the UK’s future relations with the EU as the cut-off date for reaching a preliminary agreement on Brexit terms grows ever closer. “Exit” day is scheduled to begin on March 29, 2019, at 11 p.m. GMT. That’s 274 days away, and there’s scant sign of any progress on key sticking points such as the Northern Ireland border, the so-called “passporting” of UK financial services, and a future aviation agreement between the UK and the EU.

Whatever the reasons for the potential departures from the UK, one of the things the recent constitutional crisis in Catalonia threw into stark relief is just how fickle and fearful money is, and just how quickly companies — even local ones — will up sticks if political developments in a particular region jeopardize their operations.

International banks and asset managers with large London-based operations are now scrambling to augment their EU outposts to mitigate the loss of passporting rights which enable them to offer financial, advisory and trading services to corporate clients across all EU states with just one local licence. JPMorgan is reportedly looking to expand its office space in Milan, where it already has around 250 staff, while Goldman Sachs is planning to double the number of staff in Frankfurt, which currently stands at 400.

Bank of America is merging its London-based subsidiary with its Dublin-based Irish entity, which will become its main EU base. It has also said it will expand its investment banking activities in Paris and shift some of its London-based back-office operations to Dublin. It is also transferring three of its most senior UK-based bankers to Paris in one of the most senior Brexit staff redeployments to date by a major bank, according to Reuters.

But moving key operations and staff across the channel is a costly, complex undertaking. Many companies would still prefer to play a waiting game, and most of the moves that have taken place so far have involved small parts of firms’ operations. But according to the European Banking Authority (EBA), which itself is relocating from London to Paris, time is running out. In an opinion paper released on Monday, it warned that City of London authorities and many UK-based banks were far from ready for a no-deal scenario.

“Financial stability should not be put at risk because financial institutions are trying to avoid costs,” the paper says. In a remarkable coincidence Monday also saw a separate warning from the ECB that any banks that haven’t submitted their licence applications for operating in the Eurozone by the end of the month could find themselves without a permit by the time of Brexit.

It didn’t take long for the City of London to hit back. On Wednesday the Bank of England warned that unless the EU accepted a temporary permissions regime for financial services, up to £29 trillion worth of financial contracts could be declared void in the event of a no-deal Brexit. Derivatives contracts could come to an end without fresh legislation from the UK and EU, the central bank’s financial policy committee said.

“UK and EEA parties may no longer have the necessary permissions to service certain uncleared over-the-counter (OTC) derivative contracts with parties in the other jurisdiction,” the bank’s financial stability report said. “Based on latest data, this could affect around a quarter of contracts entered into by parties in both the UK and EEA, with a notional value of around £29 trillion, of which around £16 trillion matures after March 2019.”

For the moment the EU — and in particular, the ECB — seems more interested in trying to gain a larger share of financial clearing, a lucrative business dominated for years by London. As we previously noted, the clearing business is the jewel in the crown of the City of London’s financial services industry. As such, it will not give it up lightly.

But as the clock continues to tick down, the war of words across the Brexit negotiating table is growing increasingly bitter and the potential for ugly consequences, intended or otherwise, increases. By Don Quijones.

After scandals and collapses, and a pile of off-balance-sheet government debt, the UK revisits the logic of outsourcing. Read…  Multi-Decade Outsourcing Boom Comes to Sticky End in the UK

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  31 comments for “Corporate Brexodus Begins as “No-Deal” Brexit Looms

  1. DrMike says:

    This is just propaganda from the Remainers.
    Airbus only makes the wings in the UK, they are unlikely to shift because they have a large investment here and there would be a political backlash, particularly to BAE systems who owns 20% of Airbus. BAE s biggest customer is the UK government.

    Unilever has been thinking of going to Holland too. Is the main reason Brexit? The main reason seems to be that Holland has been making changes to taxes and some firms might use Brexit to go and take advantage of them.

    Personally I hope for a no deal Brexit. That would get the UK out the quickest. It would also give a certainty and a finality that would let businesses plan. Firms will stay behind or new firms will replace any corporate exodus, to serve the market here . Good riddance to the EU.

    • Covey says:

      Presumably the UK tax take will increase considerably once we leave the EU because the multi nationals like Apple, Starbucks, Google, Facebook etc etc will have to pay UK tax, instead of continuing the current tax avoidance merry-go-round where all Apples sales are billed through Ireland where they pay less than 2% corporate tax.

    • Lance Manly says:

      >BAE systems who owns 20% of Airbus

      Sold in 2006

    • c_heale says:

      Airbus will shift because like most manufacturing they rely on JIT deliveries of components. They can’t afford to be subject to custom delays. A no deal Brexit might give businesses certainty, but the current government has completely failed to say what kind of Brexit it wants, and has failed to negotiate in any meaningful way with the EU. Therefore businesses don’t know what to expect. Therefore they will err on the side of caution and leave the UK. The only Brexit that would have been worthwhile imo would have been one to the EFTA, but this has been ruled out by the government’s ‘red lines’.

    • Old Codger says:

      Agree, a letter saying that “as of Monday at 9AM we are OUT of the EU”!

    • mike says:

      I live near warton aerodrome and have a friend who is a manager for carbon fiber production for bae and even he as an individual wants to move to toulouse to be in europe probably transferring to airbus ,talented people are leaving

  2. OutLookingIn says:

    Brussels is turning up the financial and economic heat on the UK.

    Hence the ECB warning to banks about license applications due by the end of the month! With the added threat that their permits to operate within the EU could be in jeopardy.

    While the European Banking Authority says: “Financial stability should not be put at risk because financial institutions are trying to avoid costs..” What a laugh!

    Meanwhile Ferrovial, Airbus and BMW all make noise about moving operations out of the UK. These international mega-corporates depend heavily on international banking and stand vulnerable to financial pressure.

    More ‘saber rattling’ and ratcheting up already tough stances. Little wonder there has been no progress in negotiations.

  3. 2banana says:

    The EU wants to play hardball?

    The UK should announce a real free trade agreement with Russia and America.


    • LEE says:

      Good idea. The EU might collapse before this exit ever gets done.

    • Caliban says:

      That’d be way too hard for the criminally incompetent government of what’s her face. Besides that all those pro-Brexit voters will give her a pass for failing. Because, as everyone knows nowadays, “If it’s too hard, it’s not worth doing.”

    • Alistair McLaughlin says:

      UK should be part of an expanded NAFTA for sure. But that won’t happen under a president who staked his entire reputation on destroying NAFTA.

    • fajensen says:

      Good Idea. The sight of Boris the Clown groweling and kissing Putins ring after all the accusations and name-calling would be quite envigorating.

    • mary says:

      Hey, don’t leave out North Korea. Since this new alliance will consist of countries whose leaders know how to play Trump.

  4. KPL says:

    “Ferrovial has announced it is moving its international HQ from the UK to low-tax haven Amsterdam because of Brexit… it needs to keep within EU legislation after the UK leaves the EU.”

    Curious. What will they do when EU itself is non-extent some time in the future (a non-zero probability outcome)- come back to UK or go elsewhere?

  5. raxadian says:

    Eh, considering how Italy and Spain have been “about to crash” for a few years now, I don’t think the EU will have the last laugh…

    • Drango says:

      Exactly. Cutting off business with EU banks may be the best thing to happen to the UK. But just like here in the US when it comes to “free trade,” you will never read anything about the advantages of leaving the EU. I wish this article had at least mentioned why so many UK voters don’t want to have anything to do with the EU train wreck.

  6. Realist says:

    Will be interesting to see. Btw, what will happen to British suppliers that deliver parts to EU27 ? Trade agreements stipulate often that a certain percentage of a product must be EU produced to fulfill the agreements and in that case UK sourced stuff will cause problems, so I dare augur that UK suppliers will loose a significant amount of exports. And I sincerily wish the Brits good luck with their special relationship regarding the USSA, they’ll need it in the trade talks with Washington.

    Once again an exellent piece by DQ.

    • Steve clayton says:

      Complete free trade no tariffs deal with the US would be a good start.

  7. caradoc says:

    Some moves to Holland are on the basis of protection against acquisition – perfect case Unilever.

    There will be pain, across the board, no doubt.

    UK should look to reduce taxes and become a large tax haven. Surprising what problems corporates will ignore if taxes are low enough.

    There has been a subtle “psyops” in some UK circles where subliminal messages of “short term pain for long term gain” has been sent out. It may be long term pain.

    However, the EU can damage and lose a major customer and Deutsche Bank fall at the hand of derivatives and take EU banking with it.

    A game of Jenga with no one knowing when the tower will collapse, probably just as the US hits recession, problems in the Eurozone intensify and Britain goes off line as the 2nd net German export market.

    What could possibly go wrong?

    • Steve clayton says:

      Holland and Ireland screw the rest of the EU countries with their tax policies so would be good to get our own back.

  8. jez says:

    Amusing thing is the EU works negotiations on a “nothing is agreed until everything is agreed” basis. The UK should work on this basis and argue, “well until we ARE AGREED on a reasonable post-Brexit settlement you will not see a penny of the £39b we offered you as a ‘divorce’ settlement.

    Imagine the red faced outrage at us holding them to their own principles….. They shouldn’t expect any of the promised money until there is such an agreement. We can’t ‘crash out’ then pay them agreed money, that would be absurd.

  9. peter says:

    It seems to me that the big corporates can see the writing on the wall for them avoiding taxes and not being able to play the tax game. So they are trying to influence how the government and public act, in their interests and not those of the people. As usual, democracy is being steamrollered by multinationals.
    Britain did ok before it joined the EU and will be fine after it leaves. Might be some pain along the way, but they’re a stubborn bunch and it might the kick in the bum they need to get their act together and become Great Britain again. Only time will tell.

    • Laughing Eagle says:

      “democracy is being steamrollered by multinationals” – agree totally.
      Fear spread by threats, propaganda or some think tank study.
      Multinationals enjoy removing sovereign borders.

    • roger says:

      “Britain did OK before it joined the EU”. Not true, Britain was a bloody shambles before it joined the EU. Joining was the last gasp before becoming completely 3rd world.
      England is now on the edge of an economic abyss similar to Venezuela (Scotland will quit the UK and rejoin the EU as soon as the subsidies run out).
      Brexit is a disaster unfolding before our eyes.

      • Steve clayton says:

        Roger, the UK was in a mess pre Europe due to the unions. Then we joined on trade alone, not what were seeing now. Project Fear doesn’t work either. The EU project has been a disaster for the UK in a lot of ways.

        • roger says:

          Steve; it is simplistic to blame the unions for Britain’s problems, they certainly didn’t help, but their attitude reflected generations of social conflict in Britain. The British political system is a pantomime, a Disneyland, where process long ago superseded purpose.
          I remember Britain joining the EEC, and I voted to remain in 1975. For me at least there was no doubt about the EEC being a political project with the ultimate aim of a united, federal Europe.
          You are going to see the continuing results of BREXIT and it will not be pretty.

  10. IwasGnarth says:

    I thought the British were famous for stubborn and quite often self destructive bloody mindedness. Veiled threats to leave (if genuine – I suspect Airbus & friends are pleading for a little clarity instead) seem almost guaranteed to inflame the increasing sense of ‘Bring It On If You Think You’re Hard Enough’ that has been projected toward Brussels since the referendum.

  11. Leser says:

    Those “banks are moving staff to Europe” news are mostly posturing, typically put out as leverage in ongoing negotiations the banks have in the UK with e.g. regulator, government, landlord etc. From a good source I’ve heard that UK-based banks so far have mostly just rented/optioned office space in Frankfurt to tick “we’re preparing for Brexit scenarios” compliance boxes. Few people have been added on the continent (note added, not necessarily moved), and even fewer front office staff, none of whom are keen on Frankfurt.

    Brexit is the catch-all scapegoat for all and sundry. Even before the Remain propaganda which remains active, well-funded and well-networked.

  12. kk says:

    Well time will tell ……

  13. John Taylor says:

    It’ll be interesting to see this play out … I think there will be a lot more dire warnings and “brinksmanship” with a lot less post-Brexit chaos than media outlets predict.
    A hard date of March 2019 gives Britain a bit over a year to deal with the US as well.
    It’s strange how the Republicans and Democrats here seem to have very different allies, as Bush-Trump favored Britain and Israel while Obama-Clinton tended to see Germany as their #1 ally.

  14. lenert says:

    Bank of America.

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