In the feverish reshuffling of financial services for a post-Brexit world, London still comes out ahead, but less so.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
As two years of Brexit negotiations finally come to a head and all eyes are on British Prime Minister Theresa May’s frantic efforts to get the draft deal passed, France is making a big move on the City of London’s gold market. As Reuters reported Monday, the Bank of France has partnered with mega-bank JP Morgan Chase, one of the world’s largest bullion trading banks, to offer global central banks and sovereign wealth funds the full gamut of swaps, leases, and gold deposits.
Sylvie Goulard, the Bank of France’s deputy governor, recently wrote in The Alchemist, the in-house journal for the London Bullion Market Association (LBMA), that Paris is looking to reestablish itself as a mover and shaker in the international bullion market. “While these gold investment services have until now only been offered from London, it recently became possible for the Banque de France to offer them also from Paris,” she said.
France is already the world’s fifth biggest sector gold holder, carrying around 2,435 tonnes of gold in its official reserves. But until now central banks holding gold at the Bank of France had to go through London, home to the world’s largest commercial bullion trading pool, if they wanted to perform market transactions.
But the Bank of France has been expanding its gold services. It has also refitted its bullion vaults to allow heavy forklift trucks to operate within their confines, and upgraded the quality of its gold reserves so they can trade on the international market. Its newly consummated partnership with JP Morgan, a member of a select group of global banks that settles trades in the LBMA, is the clearest sign yet that Paris wants a piece of London’s $25 billion-a-day gold bullion market.
France’s central bank has not been shy about its intentions. In May Bank of France Governor Francois Villeroy de Galhau announced that one of the central bank’s key aims is to become “the markets’ central bank in Europe” and that Brexit represented a “historic opportunity” to restructure the EU’s financial system. “In this respect, Paris has a lot of assets to become a major center for corporate finance and innovation in Europe,” he said.
Paris has already won a bid to become the new home of the heretofore London-based European Banking Authority, the EU regulatory agency that, among other things, conducts periodic stress tests on Europe’s biggest banks. The French government has also done everything it can to woo financial firms fleeing Brexit uncertainty, including promising them light-touch regulation, flexible labor laws and income and corporate tax cuts.
The government’s efforts have met with relative success. So far, nine major financial institutions, including Bank of America, Goldman Sachs and HSBC, have committed to move part of their London-based operations to Paris, according to a recent survey by German bank Helaba. That’s three more than Luxembourg and Dublin have managed, and six more than Amsterdam.
But it’s far below the tally notched up by the ultimate winner in the race to displace London, Frankfurt, which has attracted a total of 25 lenders looking to move operations out of the City of London before Brexit. Those lenders include Barclays, Lloyds Banking Group, Citigroup, Morgan Stanley, Credit Suisse, UBS, Nomura and Standard Chartered Bank. In all, Germany’s financial capital is expected to draw around half of the Brexit-related jobs moving out of London over the coming years, with 8,000 new roles expected in the greater Main region surrounding the city.
There’s an obvious reason behind Frankfurt’s blossoming allure: proximity to power. The city is already home to 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.
But that’s not to say that the impending arrival of thousands of well-minted foreign bank executives and staff is being welcomed with open arms by the city’s residents. Many fear that the influx of new money will propel the city’s already elevated housing prices and rents into the stratosphere, much as has happened in London. Frankfurt is one of a number of Germany cities to have witnessed protests against rising rents in recent months.
For the City of London the current state of affairs is probably not as bad as many feared it could be by this stage of proceedings. If, by some miracle, UK Premier Theresa May is able to crowbar her widely unpopular Brexit bill, which would grant equivalence to the City’s financial services industry, through a largely hostile parliament, it could get better.
London has not experienced the mass loss of tens of thousands of highly paid financial services jobs that many think tanks predicted, though there’s still time for that to happen, particularly in the event of a crash-out Brexit. Nor does the City risk automatically losing its dominion over the global derivatives industry in the event of a no-deal Brexit, thanks in large part to a last-minute concession by EU negotiators.
Most importantly, there is no sign of London losing its place as Europe’s preeminent financial center in the near future, although Europe’s banking activities and operations are likely to be spread more evenly across EU territory following Brexit. As Ulrike Bischoff, the author of Helaba’s report, says, “in principle, our ranking of Europe’s major financial centres continues to apply: London before Frankfurt before Paris.”
If, in the best case scenario, the draft Brexit bill is passed, London will automatically lose seamless access to the world’s biggest trading bloc. That could accelerate the narrowing of the gaps between Europe’s three major financial centers, a process that began on June, 19, 2016, when a small majority of British people voted to leave the EU. For Paris, which seeks to reestablish itself as a major global financial center with a world-class gold bullion market, the bad news is that Frankfurt has come out the clear winner. By Don Quijones.
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I predicted that the EU would break up right after Bear Stearns went down and before Lehman. Today it is fully evident that a hard BREXIT is certain and that the marquee investment banks are going to abandon London for Germany & France. BREXIT cannot be undone in light of Debt-to-GDP across the EU. Architecturally, financial doom is certain for the EU block given Secular Stagnation & the ongoing GFC which was never resolved by Geithner’s TBTF bets that merely exacerbated the fallout from 08 and did nothing to ameliorate the contagion for the long term. QE did nothing to help sovereign nations deal with the GFC aside from allow everyone to buy time until QT entered the picture for the downside of Geithner’s meddling with TBTF as a stop gap measure to elevate markets and attempt restoration of equilibrium which had completely decoupled at that juncture.
Geithner’s calculus came with a shelf life of the duration of QE. We now evidence the contagion in markets that Paulson & Geithner never dealt with back in September of 08.
One step backwards does not get a nation two steps forwards now matter how much time the state has to spin it.
BREXIT is a hard prospect and cannot possibly be thought of otherwise. I suspect that WW3 is immanent given NATO dependency upon USD Reserve Currency Status.
BREXIT will be the straw that breaks the greenback petrodollar back via USD.
Entropy did not like the closed-looped cybernetic governance of Brussels as thermodynamics of the EU impinge on their gatekeeping on credit for the entire EU block states.
Agency has been destroyed throughout the EU via the imposed lack of agency that Brussel’s personified with respect to the USA & Wall Street FED Reserve shenanigans and leverage over all EU countries which have abrogated their responsibility as sovereign nations each unto their own.
Greece was the canary in the coal mine here.
MOU
What happened to the normal Greek people was shameful. Left to rot by the EU. That won’t happen to Italy, they won’t accept it.
Greece was just for practice.
correct.
Agree.
They bought the ticket, it’s a shame they didn’t enjoy the ride!
‘I suspect that WW3 is immanent…’
If so, the fate of Brexit, the EU, the petro-dollar and everything else seems besides the point.
“the fate of Brexit, the EU, the petro-dollar and everything else seems besides the point.”
that’s the conclusion that i’ve come to. it’s going to get really ugly before it gets better. even if we avoid a world war, the eu is coming apart at the seams. i doubt it will exist in it’s present form in five years.
soft brexit ain’t happening. it’s either hard brexit or no brexit. as mr. farage so eloquently puts it #leavemeansleave.
I’m conflicted while I do believe that Brexit is necessary for the autonomy of the British populous, there will undoubtedly with much strife in the immediate aftermath. The deeper reality is that the EU itself isn’t sustainable however this may hasten its downfall, after all, they are the third larger contributor. As I always say more remains to be seen.
I think Brexit will strengthen the EU.
The reason I believe that is that in order for the EU to hang together, there needs to be popular support. For this to happen there has to be a credible social dimension to provide a counter balance to the neo-liberal “Markets Only” EU-policies that was embarked upon around the 1990’s.
These policies were and are very much pushed by the UK. Part of the enthusiasm of the many wonders of Brexit are exactly how “Zero Rules” are Good for Britain.
The UK was always the blocker of any kind of EU-evolution away from “Markets Only”. Without the UK, more political flexibility is possible. We are already seeing different trial balloons going up.
Regarding the British contributions, I think the experience shows, that “Bruxelles” in reality have few problems with fudging some fiscal rules whenever it is necessary: The hole will be covered; We can even predict that a large overhang of dead investment will be written off and possibly bailed out too over Brexit, this being a “special, one time event that no one could possibly foresee” and all.
The “inevitable breakup of the EU ™” will not happen on a timescale that anyone “here” cares about, is my prediction!
Macron is under 10% approval.
The EU is just one French election away… or Italian default away from implosion.
If the Italian 10-year yield hits 9%… which it could… how does the EU survive such an event?
answer: It doesn’t.
You are not explaining your reasoning. How does, say, the “Italian 10-year yield > 9%” mean the end of EU? What is this mechanism of “certain doom”?
And … why will “Bruxelles”, Germany, the French or whatever absolutely not move and reposition themselves according to how the environment is?
There are no principles! In politics, one will hold a very firm and highly principled position – until the time that one suddenly takes a different one. That is how the world works in practice.
The EU is no different, it has a lot of stakeholder support despite some very loud ranters primarily resident on SoMe. The project will adopt itself to whatever the circumstances are and move on.
Brexit causing tormoil is all BS by the globalist’s. They can stand countries defining borders. For them it is a world controlled enterprise with no borders.
Macron showed his allegience when he said Nationalism is the opposite patriotism. Oh yea try telling anyone wearing a US military uniform. If you do not have a country there is no way to have patriotism. And this is from a Vietnam Vet 1967-1968.
If you don’t believe in open borders, you shouldn’t believe in free trade across borders either. Either have both free movement of goods AND labour, or neither.
Unless you believe in colonialism.
Everybody is culturally incompatible until they aren’t. Europe isn’t “white”-it is the end point of every horse mounted tribe moving to the end of the plains or war party from North Africa and the Mediterranean. America didn’t think Irish people were white until it was necessary that they become white due to forced school bussing. Then suddenly Jews, Italians, Poles, Slovaks, Hungarians, Montenegrins, Albanians and who knows what suddenly became culturally compatible because blahs. Now the blahs are sometimes okay because the GOP doesn’t want to look too racist for suburbans to vote for them. Add in everybody we invaded and then bailed on, including Iraqis and Afghans and soon Yemenis-they will be in the compatibility mixer becoming USians.And we might all be eating McShashlik and lovin’ it as a result.
-> For them it is a world controlled enterprise with no borders.
Which is what Carroll Quigley said it would become in ‘Tragedy and Hope’, fifty years ago:
” . . . financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole.”
The explanatory detail on strategy and tactics is illuminating. World leaders take it very much for granted, but it doesn’t trickle down.
The EU was their way of getting the oxen into a team under one whip, although the divide-and-conquer approach still has its uses.
Precious metals are surging this morning. Are beaten-down gold & silver getting set to regain their status as safe havens and insurance against central bank debasement of the currency?
JPM is the center of fraud in the precious metals markets. For France to partner with the epicenter of fraudulent trading would be disastrous unless the goal is to control those same markets.
The only advantage that I see if that London is/was the legal ground for extreme fractional (reserve) markets where 1Oz can be loaned hundreds of time while still on the book of each market participant.
French law does not allow that level of (re)hypothication.
Maybe that would decrease the extreme dilution of so called pooled accounts.
An american bank was even found to sell pooled account (with storage fees) when no gold was even purchased.
Gold has to be owned free and cleared, under one’s name, without leverage, in physical form. And for that France has become a big brother State where no transaction can be done cash and all precious metals have to be declared.
France law also still on the books, prevent ANY move of undeclared gold outside the borders, which is ironic considering that the EU is supposed to have eliminated those borders.
I smell a rat.
The physical gold market has already moved to Asia. What is left, whether in London or Paris is a fraudulent paper gold market, extremely leveraged, without significant underlying gold, it rehypothicated hundreds of time.
The link between the real physical market of Asia and the fake rehypothicated markets of the West is Switzerland.