This is just one more reason why Brexit won't be allowed to happen by England's governing bodies.
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European Cities Battle for London's Finance Crown After Brexit Vote
| Wall Street Journal | - |
A team from Paris Europlace, which promotes French finance, plans to travel to London to woo financial firms and professionals.
European Cities Battle for London’s Finance Crown After Brexit Vote
Paris, Frankfurt and Dublin are looking to lure financial firms away from the British capital
Following the U.K.’s
vote to leave the European Union, London’s position as the continent’s
premier financial center is under threat.
Photo:
Jason Alden/Bloomberg News
Following the U.K.’s vote to quit the European Union, London’s position as the continent’s premier financial center is under threat, and officials in Paris, Frankfurt and Dublin aren’t wasting time in trying to hasten its downturn.
The day after last week’s vote, Ireland’s foreign investment agency wrote to more than a thousand investors reminding them that the Emerald Isle was staying in the EU and offering help to move people over. In Frankfurt, officials set up a special hotline for banks that want to discuss shifting operations outside Britain, in preparation for thousands of potential defectors.
A team from Paris Europlace, which promotes French finance, plans to travel to London to woo financial firms and professionals. French government agency Business France published leaflets outlining the joys of working—and living—in Paris.
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Financial regulation will be a key issue in the U.K.’s exit negotiations with the EU. For Britain, the stakes are high. The financial industry accounted for 12% of U.K. economic output in 2014. Nearly 2.2 million people work in financial and related services, more than 700,000 of them in London.
Faced with growing competition from Europe, lobbyists from the U.K.’s financial engine are scrambling to steady the ship.
“There has always been a friendly rivalry between us,” said Chris Cummings, chief executive of lobbying group TheCityUK, during a break between fielding calls from a plethora of concerned investors.
Some two dozen bank executives gathered this week at the British Bankers’ Association’s headquarters to hash out how to press governments to let the U.K. keep its right to sell financial products across the EU, according to a person familiar with the matter. That could help keep banks in London.
Whether the U.K. secures a deal for the sale of products across the EU—so-called passporting—is crucial but could take years to determine. The negotiating process for the U.K.’s exit isn’t likely to start until fall at the earliest. But already, clients want banks’ reassurance there won’t be disruptions in their services, said Simon Gleeson, a partner at law firm Clifford Chance.
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France in particular has strict rules; firing permanent employees usually requires negotiating large severance packages, and efforts to loosen labor laws have fallen short.
But French officials point to tax breaks they offer for moving employees to France, and financial-sector groups say they are increasing their lobbying for broader tax cuts to attract banks.
And Ireland is increasingly giving the U.K. a run for its money, luring companies with a corporate tax rate of 12.5%.
The chief executive of Europe’s largest stock exchange said it is “highly likely” to establish a presence in the eurozone.
“Unless we get an early and clear view on the U.K.’s negotiations with the EU, which I don’t think is likely, we are highly likely to set up a eurozone legal entity [in addition to the London headquarters] just because it provides us with some certainty,” said Mark Hemsley, chief executive of Bats Europe.
His counterpart at exchange operator Euronext NV warned that the 30% to 45% of trading in euro-denominated assets done in London would only be acceptable while the U.K. was part of the single market.
“What was normal when you share a common destiny, a common single market, a consistent regulation becomes an anomaly once London leaves the EU,” said Euronext CEO Stéphane Boujnah.
Few bank executives anticipated the U.K. would vote Leave and even fewer have detailed plans to deal with it, according to bankers. Morgan Stanley has created a working group to look at other potential locations in Europe, according to a person familiar with the matter. Barclays PLC is getting ready to scope out Dublin as one potential European base, according to a person familiar with the matter. Some major lenders, including Citigroup Inc., will likely wait six months or so to see if the renegotiation of the passporting rules is at all feasible before deciding how to shift jobs abroad, people familiar with the plans said.
Banks won’t uproot all of their London operations, just those required to be relocated by European regulators, analysts said.
“A lot of banks are in London to access the international capital markets, rather than the EU markets,” said Michael McKee, a partner at law firm DLA Piper.
Even before the Brexit vote, London was feeling the heat. The high living and office rental costs were pinching cash-strapped banks. R3Location, a London-based business that specializes in moving employees and works with several banks, saw demand drop 20% in the last six months as businesses held back from shifting top executives to the capital, said co-founder Marco Previero.
Still, quitting London is not painless. Few other European cities share London’s time zone, English language, common law and cosmopolitan appeal. Many are a fraction of the size of the British capital so companies face a difficult call: move fast to snap up available office space and ensure their staffers’ children get into schools, or wait to see if a passporting deal gets hashed out.
One major weapon in the U.K.’s arsenal would be voiding an EU-wide cap on bankers’ bonuses. The British government lobbied unsuccessfully to remove the cap, which limits annual bonuses to twice base salary. Following a Brexit, the country could scrap the rule altogether.
The vote has also triggered other worries. Several banks are conducting audits of employees’ immigration papers. The fear is that non-U.K. citizens could lose the right to work in Britain—or U.K. citizens could lose the right to work in the rest of the EU, said Maarten Poels, a regional director at Santa Fe Relocation Services, a firm that specializes in moving employees for global lenders.
“That will give us a sense of who might be able to stay or need to relocate back,” said Mr. Poels.
Lifestyle will also be a factor. For instance, Frankfurt is home to the European Central Bank and boasts a lower cost of living than London, but it also has a reputation for being a boring city.
“Good luck trying to convince U.S. investment bankers to move there,” said one London-based consultant.
Frankfurt Main Finance denied people find the city boring once they know it. “They say Frankfurt makes you cry twice,” said Hubertus Väth, managing director of the group promoting the city. “You cry when you get sent there and then you cry when you have to leave.”
Write to Max Colchester at max.colchester@wsj.com and Sam Schechner at sam.schechner@wsj.com
