JPMorgan and UBS both warned in separate notes this week that London is likely to see an exodus of finance jobs in the wake of the Brexit vote.
They join US rating agency Fitch and the cohead of Goldman Sachs’ investment bank in warning that the City could see significant downsizing in the year’s ahead after Britain voted 52% to 48% in favour of leaving the European Union.
Both JPMorgan and UBS think London will remain a financial hub but believe the city’s dominance in Europe, and the world, will be diminished, with the likes of Frankfurt, Paris, and Dublin benefiting as a result. Such a move could devastate London. Around 350,000 people work in finance in London.
JPMorgan’s Malcolm Barr writes in a note titled “How Brexit Happens” sent to clients on Wednesday: “We expect there to be clear evidence of multinational operations shifting the location of their activity out of the UK given the regulatory uncertainties. Financial services are among the sectors that will be most exposed to this process.”
Barr continues (emphasis ours):
Even if the UK begins to signal that it will compromise on other priorities in order to secure “full” access to the single market in financial services, there is a clear risk that euro-denominated activities relocate to within the EU simply to ensure continuity of relationships. In the event that it becomes clear that a given EU capital is the destination of choice, there is a possibility that this change could occur relatively quickly. The micro-economics of wholesale financial markets points toward sizeable externalities associated with the sharing of information and linkages between markets, hence its tendency to “clump” together within each time zone.
Finance firms hate uncertainty and while Britain may well get access to the Single Market in the EU and all the bells and whistles that banks want, it will take at least 2 years and they are unlikely to hang around. Much easier to just move a few thousand people to Frankfurt and carry on as normal.
US ratings agency Fitch said in a note on Tuesday that it expects banks to “start strategically implementing parts of their contingency plans rather than wait for trade and service arrangements to be agreed.”
JPMorgan, Barr’s employer, has already warned that it will likely have to move a quarter of its 16,000 UK employees to elsewhere in the EU.
Britain may well not even get the sweetheart deal on trade and finance that’s hoped for either. French President Francois Hollande yesterday signalled that he wants to stop London clearing trades made in euros, something that would be a hammer blow to the city and surely force even more jobs overseas.
Meanwhile, UBS writes in a note on the fallout from Brexit on European real estate that “The vote to leave is likely to hit financial and business services output and job creation across the UK, and there is now a strong possibility of many jobs being moved away from London.”
Jobs will most likely move to Paris, Frankfurt, or Dublin, UBS thinks. Most banks do business in the UK, so are unlikely to up sticks and move altogether. But at least some jobs could be moved and in a best case scenario job creation could suffer.
UBS say: “The appeal of London for many occupiers is that it provides access to the dynamic UK market as well as constituting a gateway to the EU, a selling point which is obviously now greatly diminished.”
If banks can’t “passport” there licence from the UK to other EU nations, they will have to set up base elsewhere or fall foul of the law.
As well as JPMorgan and UBS, Goldman Sachs is warning of a possible jobs exodus. Speaking at a conference in London this week Goldman’s cohead of the Investment Banking Division, Richard Gnodde, said “every outcome is possible,” and added: “If passporting was totally removed, we would have to adjust our footprint and where people were located.”
Of course almost no bank wants to be the one to admit they are moving jobs onto the continent. So far almost all have reaffirmed their commitment to the UK. But all have also underlined the fact that, ultimately, they will do what’s best for their clients. Their analysts seem to think that’s moving at least some jobs elsewhere.