Baffled by Brexit: With So Much Unknown, London Bankers Struggle to Plan
June 29 2017 - 05:47AM
Dow Jones News
By Max Colchester
LONDON--The City of London is back in the dark over Brexit after
this month's U.K. general election muddied the outlook for the
U.K.'s departure from the European Union. Banking chiefs here have
been left to wonder whether to accelerate plans to move operations
into the EU.
Earlier this week Prime Minister Theresa May sealed a deal with
a group of Northern Irish lawmakers that will keep her Conservative
Party in government despite the loss of its Parliamentary majority.
But with Mrs. May's position weakened and a reshuffle of several
high-level political backroom staff, the spectrum of Brexit
outcomes facing banks has widened.
The likelihood of the U.K. crashing out of the EU without a deal
has increased, but equally so has the chance Britain could push for
closer ties with the trading bloc, analysts and bankers say.
"A lot is open to debate again," says Stephen Adams, a partner
at consultancy Global Counsel.
Pressure from regulators is mounting. By July 14 financial firms
in the U.K. must submit plans for life after Brexit to the Bank of
England. In particular the central bank wants to know what lenders
will do if the U.K. is suddenly cut off from the single market.
Major banks have mostly drawn up their blueprints based on a
worst-case scenario. Morgan Stanley, for instance, is expected to
finalize a plan in the coming weeks to create a hub in Frankfurt
and bulk up several European offices, according to people familiar
with the matter. Japan's Daiwa Securities Group Inc. and Nomura
Holdings Inc. both announced this week they will also look to move
operations to Frankfurt.
But the extent to which the banks will have to execute these
plans remains unknown. If the British government opts to negotiate
close ties to the EU, then banks may be able to maintain a bigger
chunk of their operations in the U.K.
Summer drinks receptions around London's square mile this week
were regularly punctuated with bankers lamenting Brexit
uncertainty. "We don't know who to call in government," says one
public affairs chief at a major British bank. Another joked that
the only person who would answer the banks calls was "Larry," the
Downing Street cat.
Up until last month investment banks in London were preparing
for an exit from the EU's single market and customs union. Several
lenders detailed plans to move operations and hundreds of staff
into the EU to ensure they could sell to clients there. The
lobbying battle had reduced to ensuring banks have enough time to
restructure their operations before the U.K. formally quit the
trading bloc.
The surprise electoral result upended this. "The election
results gave an opportunity to reflect and reset the tone as the
U.K. enters negotiations," says Catherine McGuinness, Policy
Chairman, City of London Corporation, which promotes the city as a
financial services center.
In the days after the vote, banks began to mull a public
relations drive via trade associations to push the government to
secure greater access to the EU for financial services and soften
its stance on immigration, officials say. The momentum stalled as
bank staffers struggled to get a clear understanding of the
government's thinking on Brexit and which officials they should
lobby, officials say.
There have been wholesale changes in government, with key aides
to Mrs. May resigning and a new City Minister, whose job is to
manage relationships with financial services, appointed. It was the
seventh new City Minister in five years.
Some politicians have seemed open to the banks' demands. U.K.
Chancellor of the Exchequer Philip Hammond called for comprehensive
free trade in goods and services via "a transition that protects
the free-flow of trade across our borders," during a speech in
Germany on Tuesday. But the position of the U.K.'s Brexit
Secretary, David Davis, remains less clear-cut.
"We are in wait and see mode," says one bank executive.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
June 29, 2017 05:32 ET (09:32 GMT)
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