Britain: Losing Pounds

TLDR:

  • Brexit may cause barriers to markets and decreases in profitability
  • For this reason, businesses are beginning to leave the UK
  • The biggest hit the UK will take is the exodus of big banks leaving the London financial hub for cities like Frankfurt and Paris

Nearly two years out from the history-making Brexit vote, the London city centre is starting to see the repercussions. London, England has been the financial centre of the world for the past three decades. However, the regulations put in place by the exit agreement could remove some of the competitive advantages that made the city ideal for banks; forcing some of the top institutions to select a new European headquarters, or at least diversify their office locations.

London as a financial centre

London became the primary global financial centre due to its optimal position between the eastern and western market time zones, and the legislation put into place by government in the 1980s. Since the market was freed up by deregulation, the stock market has experienced rapid growth.

The British capital will retain advantages such as infrastructure and liquid markets: more European investors are based in London than anywhere else. However, Brexit will cause any UK-based banks to lose their “financial passporting” rights: or easy trade and business with investors throughout the EU, thanks to the open 28-country market. The effects will be huge: experts predict that London may lose its ranking as #1 financial hub by as soon as 2023.

The impact will be widespread on the UK’s economy as multiple other businesses will seek headquarters in new European countries due to the weakening pound; loss of access to the European market; political instability; and potential tariffs on British exports which will weaken their profitability.

London’s Losses: The Financial District

Financial Services are currently Britain’s largest export – and the most threatened. If Britain doesn’t negotiate a new relationship when they depart the EU in a year, they will lose their financial passporting abilities: meaning they can no longer provide financial services throughout the block.

For this reason, many banks are electing to move part or all of their London staff – an estimated 5000 total – to different cities throughout the EU. Some jobs are being kept in London because it still retains the banking infrastructure and high investment. Although these moves are being made quickly, the banks aren’t impressed, as seen by CEO of Goldman Sachs’ commentary.

Where are they going?

Since the hub will likely only partially dissolve, the hub mentality is less emphasized. Most banks are heading to Frankfurt, Germany: they are second behind London as the European hub of American investment banks, as well as home to the European Central Bank, making it a logical choice.

Paris is fighting for the top spot as well, boasting a growing economy and admittedly more attractive home for the employees of these companies. Interestingly, French President Macron is a former investment banker himself, and pledges to make it easy and profitable for IBs to switch to Paris with lower taxes and regulations.

Have your heart set on an IB job in the future? Check out where these banks are headed, and why:

Caroline Witzel

Author Caroline Witzel

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