LONDON — An oil tanker needs around five miles of sea to stop and takes up to an hour to change course.
They’re great at moving thousands of tons of crude oil across the world but they’re not nimble.
In many ways, they’re like an investment bank.
International investment banks are efficient at moving money around the globe. But, with hundreds of thousands of employees and activities governed by a complex web of financial rules and regulators, they’re not nimble.
A banker at a US firm used the analogy to explain to me after the June Brexit vote why his bank would hold off making any big moves until a clearer picture emerged of the impact on the City of London.
Moving is expensive and time-consuming, he said, and, just like an oil tanker starting to turn, it’s not a decision that can be reversed easily.
Suddenly and worryingly, however, banks are now all beginning to change course. It could fundamentally alter London’s position in the world as a financial centre.
In the 48-hours since Theresa May delivered her Brexit speech in London signalling that Britain will leave the Single Market, HSBC, JPMorgan, and UBS have all warned about job relocations, and there are reports that Goldman Sachs is planning as much behind closed doors.
- HSBC CEO Stuart Gulliver said around 1,000 bankers in HSBC’s investment banking and markets divisions would “probably need, in our case, to go to France,” in an interview with Bloomberg Television at the World Economic Forum in Davos.
- Jamie Dimon, CEO of JPMorgan Chase, told Bloomberg at Davos that the bank will likely move more people than previously thought. “It looks like there will be more job movement than we hoped for,” Dimon said. The bank employs 16,000 people in the UK.
- UBS investment bank chief Andrea Orcel warned in an interview with Bloomberg at Davos that jobs “will definitely” move as a result of Brexit.
- Goldman Sachs is considering cutting its staffing numbers in London by up to 50%, according to a report in German newspaper Handelsblatt, shifting 3,000 jobs out of the capital.
That is at least 4,000 jobs likely to go, with no concrete numbers from UBS or JPMorgan. All four of these banks have warned about possible job losses in the past too and many more finance firms are likely mulling similar changes.
A Goldman Sachs spokesman said there “remain numerous uncertainties as to what the Brexit negotiations will yield in terms of an operating framework for the banking industry.”
But it’s clear that some of the ship captains have spotted rocks on the horizon and are beginning to change course. The rhetoric has hardened, notably with Dimon, shifting from talking about possible job relocations to weighing up just how many will go.
Part of the reason banks are talking about job cuts is because all their chiefs are at Davos this week and available for interviews. But their thinking will also be influenced by Prime Minister Theresa May‘s speech on Tuesday, which outlined her negotiating stance for Brexit.
This included a rejection of the single market and an end to the free movement of people, resulting in a so-called “Hard Brexit,” which would likely have the result of stripping the City of ability to sell financial products across borders to other European countries.
The hard line on immigration has a big effect on banks as bright individuals from all around the world who previously might’ve picked London to start their working life.
HSBC’s Gulliver said this week: “So the bigger issue, as you say, is about EU nationals, because we have about 2,100 EU nationals working for us in the UK and we have about 1,300 non-EU nationals working for us in the UK under work permits, so the evolution of the work permit immigration policy is of considerable interest because, clearly, we want to be able to get the best possible people.”
Even the threat of a loss of passport has a chilling effect on firms looking to grow bigger in London, as hiring talented people here becomes riskier — will the office still be able to trade post-Brexit?
Relocation is not a decision banks will have taken lightly. They are used to moving a few employees and their families every year, but transplanting whole chunks of offices to different countries costs time, money, and emotional stress.
Once these finance jobs leave Britain, they will likely not return for at least a decade, if they do at all. Whatever happens to the City of London after Brexit, these banks and their employees will not want to reverse the expensive and stressful changes.
Of course, none of this spells the immediate end to London’s dominance as a European financial centre. In the short term, life will carry on.
But as the “oil tankers” turn and rhetoric on immigration grows stronger, it’s clear that London’s role as the financial bridge between Europe, the US and Asia has already begun to change.