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Brexit:
leading banks set to pull out of UK early next year
Anthony
Browne, head of the British Bankers’ Association, warns that major
lenders are poised to hit relocate button
Daniel Boffey
Observer policy editor
Saturday 22 October
2016 21.00 BST
Britain’s biggest
banks are preparing to relocate out of the UK in the first few months
of 2017 amid growing fears over the impending Brexit negotiations,
while smaller banks are making plans to get out before Christmas.
The dramatic claim
is made in the Observer by the chief executive of the British
Bankers’ Association, Anthony Browne, who warns “the public and
political debate at the moment is taking us in the wrong direction”.
A source close to
Brexit secretary David Davis said he and the chancellor Philip
Hammond had last week sought to offer reassurance that they were
determined to secure the status of the City of London.
However, the
government’s stated intention to take control of the freedom of
movement into the UK is widely recognised among officials to be a
hammer blow to any chance of retaining the present terms of trade for
banks, particularly given the bellicose rhetoric of major politicians
on the continent.
The so-called
passporting rights for members of the single market allow UK-based
banks to offer financial services to companies and individuals across
the EU unimpeded, yet the French president François Hollande is
among those who have insisted in recent weeks that hard Brexit will
mean “hard negotiation” and that Britain will need to “pay the
price” of leaving.
A hard Brexit would
involve the UK leaving both the single market, a cental pillar of
which is freedom of movement, and the customs union, which could
potentially reintroduce tariff and non-tariff restrictions on British
imports and exports.
Browne warns that
both British and European politicians who appear to be pursuing
“anti-trade” goals need to recognise that “putting up barriers
to the trade in financial services across the Channel will make us
all worse off”.
Browne, whose
organisation has been in intense negotiations with the government,
further warns the EU that banks based in UK are currently lending
£1.1tn, therefore “keeping the continent afloat financially”,
and that this arrangement is at risk.
Of Britain’s
position, he writes that banking is the country’s biggest export
industry by far, and that the current trajectory threatens not just
tariff-free trade but the legal right of banks to provide services.
He says: “Most
international banks now have project teams working out which
operations they need to move to ensure they can continue serving
customers, the date by which this must happen, and how best to do it.
“Their hands are
quivering over the relocate button. Many smaller banks plan to start
relocations before Christmas; bigger banks are expected to start in
the first quarter of next year.”
Sources close to
Davis dismissed speculation that he believed a solution would be for
the City to strike an “equivalence” deal with the EU, under which
the regulatory systems are recognised by both parties through a
one-off agreement. Browne writes that some Brexiters have made such
an argument but that such a deal would not be enough to stop banks
deserting Britain.
“On this side of
the Channel, some high-profile Brexiters have poured scorn on the
idea that we need passporting at all and that other regimes such as
‘third country equivalence’ will do.
“But the EU’s
equivalence regime is a poor shadow of passporting – it only covers
a narrow range of services, can be withdrawn at virtually no notice,
and will probably mean the UK will have to accept rules it has no
influence over. For most banks, equivalence won’t prevent them from
relocating their operations.”
It has been reported
that Goldman Sachs is among those drawing up plans to transfer around
2,000 of its employees to a rival European city should the UK lose
its passporting rights.
The industry body,
TheCityUk, has claimed that up to 70,000 financial jobs could be lost
if Britain leaves the EU without a new credible relationship in place
for the City of London.
Browne says he
understands the motivation of those who are seeking to take business
from UK shores, but he condemns politicians who appear to be willing
to break up the integrated financial market, which “makes it easier
and cheaper for French farmers, German manufacturers and Italian
fashion designers to secure funding”.
He writes: “It is
understandable that other European cities want to attract jobs from
London. Delegations from Frankfurt, Paris, Dublin and Madrid are all
coming to the UK to pitch to bankers. I am pro-competition, and long
may they try to make their labour market and fiscal policy more
attractive to international investors.
“That is not the
problem. The problem comes when national governments try to use the
EU exit negotiations to build walls across the Channel to split
Europe’s integrated financial market in two, in order to force jobs
from London.”
The scale of the
task facing the UK in striking a good Brexit deal with the EU has
been put in stark relief by the apparent collapse of the proposed
EU-Canada trade pact.
On Saturday,there
were frantic diplomatic efforts to salvage a deal after Canada’s
international trade minister, Chrystia Freeland, walked out of talks.
She described the situation as “impossible” on Friday and cast
doubt on the bloc’s ability to operate effectively after the
proposals were blocked by a regional administration in Belgium.
The parliament in
Wallonia is holding up the deal, although the region’s leader, Paul
Magnette, suggested the standoff could be resolved within days. It
has concerns the deal will undermine labour, environment and consumer
standards and allow multinationals to crush local firms.
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Pound
value drops below $1.22 as May faces tough opposition at EU summit
Sterling
has lost almost a fifth of its value against the dollar since the
referendum in June
Zlata Rodionova
The pound continued
its slide as Prime Minister Theresa May faced tough opposition at the
EU summit.
At her first EU
summit, May reiterated her hope that Britain and the European Union
would have a "mature and cooperative" relationship after
Britain exits.
However, she has
been given a stark warning from both Angela Merkel and Francois
Hollande that Britain faces a “rough” and “hard” negotiation
– as she pursues a tough approach to Brexit negotiations.
Sterling continued
its fall dropping below the $1.22 mark on Friday trading at $1.2197
against the dollar at market closing time.
The currency had a
week of high and lows against the dollar dropping as low as $1.2150
earlier in the week, before recovering to a weekly high of $1.2320 on
Wednesday.
Kathleen Brooks, of
City Index, cautions that hard Brexit fears may start to materialise
after the EU summit in Brussels.
"She has
already received a chilly reception, with the President of the
European Council, Donald Tusk, saying that the other 27 members of
the EU will start to work separately from the UK even before we have
triggered Article 50.”
“Some reports have
suggested that May is not seeking a close relationship with the EU
after Brexit, and her reception at the start of this summit suggests
the feeling is mutual.".
Such fears could put
the pound under pressure, spooking markets once again.
Brooks added that a
series of tense comments around the UK’s clean break with the EU
could send the pound back to $1.20 against the dollar.
Lukman Otunuga of
FXTM said: "It is becoming clear that Sterling has been
enveloped by political uncertainty with hard Brexit jitters ensuring
prices remain depressed. Although UK data continues to point to some
economic stability, Sterling may be destined for further declines as
uncertainty entices bears to install repeated rounds of selling."
Sterling has lost
almost a fifth of its value against the dollar since the referendum
in June and is the worst-performing currency in the world this year.
The pound also hit a
new six-year low against the euro on Monday.
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