U.K. Financial Firms Prepare for Brexit
October 06 2016 - 6:20AM
Dow Jones News
LONDON—When Japan's Daiwa Securities Group Inc. heard the
British prime minister pledge on Sunday to prioritize controlling
immigration in the coming Brexit negotiations, it didn't wait to
act.
The next day, staff accelerated contingency planning for the
bank's London investment banking unit and began to contact other
European cities, according to a person familiar with the matter.
While Daiwa doesn't have a definite plan yet, it could involve
relocating some operations to the Continent, and recent events are
adding to the pressure.
For the U.K.'s financial sector, Brexit is getting real. By the
end of March negotiations are due to start, and British-based banks
are scrambling to finesse plans for life after the European
Union.
So far pleading from banks to retain access to the EU has proved
a tough sell, bank executives and their advisers say. Access to
Prime Minister Theresa May "has been pretty much zero," says one
person advising several lenders on their Brexit plans. Some
executives expressed dismay that Ms. May recently visited New York
to talk to Wall Street executives but hadn't yet met some British
lenders. On Thursday, Chancellor of the Exchequer Philip Hammond
also traveled to New York with the intention of reassuring banks he
will try to negotiate good access to the EU.
Nevertheless, the prospect of a " hard" Brexit, in which the
U.K. cuts trade links with the bloc in return for control over its
borders, looms over the sector. "It looks increasingly not 'if' but
'when' banks are going to have to trigger contingency plans," says
Stephen Adams a partner at consultancy Global Counsel.
Many banks are already working on the basis that the financial
services industry is going to get a rough ride. Morgan Stanley, for
instance, is crafting plans on the basis of a worst-case scenario
of a breakaway from the EU, according to a person familiar with the
plan.
Even British-focused banks are getting sucked in. Executives at
U.K. retail bank Lloyds Banking Group PLC are considering ways to
create a subsidiary in Europe, mainly to access payment systems
there and be able to write business in the continent, according to
a person familiar with the matter.
Banks fear two things from Brexit: not being able to seamlessly
sell their services across the EU and the impact of potential U.K.
immigration restrictions on their international workforces. Details
on the government's position on both topics remain vague.
The Brexit negotiations are expected to last two years. Ideally
banks then want a treaty to be struck between the EU and the U.K.
that allows them to continue to sell products across the continent
in return for adhering to similar regulations. Also on the wish
list: a long transition period to allow companies several years to
adjust their business models to any changes.
A vast financial lobbying machine has creaked into action, with
trade groups churning out research papers on the impact of Brexit
on the finance industry and the British economy. On Wednesday The
CityUK, a business group, warned that up to 75,000 jobs could go if
the U.K. fails to negotiate access to the EU. If the status quo is
broadly maintained this could be as low as 3,000, the research
says.
But politicians are wary to be seen pandering to the
scandal-scarred finance industry, analysts say.
Tactics for pulling on political heartstrings vary. Some lobby
groups want to stress London's role facilitating funding for small
and medium-size businesses across the EU. Others want to emphasize
the impact of a "hard" Brexit on financial stability.
Dealing with the government's desire to curb immigration is also
forcing some lobbyists to unusual lengths. The City of London
Corporation is pushing a plan to soften the impact of any
immigration quotas on the British capital. A "London Visa" would
help EU citizens find jobs in city, but not outside it, officials
say. It is unclear where London would technically extend to or how
this would be policed.
Meanwhile, for lenders the clock is ticking. The day the Brexit
negotiations begin then banks have to decide on whether to press
the button on their contingency plans, says Simon Gleeson a partner
at law firm Clifford Chance. Shifting operations abroad could take
years. "And the last man out of the door looks like a loser," he
says.
Write to Max Colchester at max.colchester@wsj.com
(END) Dow Jones Newswires
October 06, 2016 06:05 ET (10:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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