Brexit - Impact on London Financial Centre

Merchants of doom are let loose by the result of the Out side winning the EU Referendum in the UK. All sorts of comments are made by objective and less objective parties. The surprise referendum result shocked quite a few and as the Remain side was expecting a win the resulting reaction was also emotionally charged. And many in the business and financial community favored staying in the EU. That our 'friends' on the other side of the Channel are fighting to get as much of the financial business as they can should surprise no one. One only wonders why they are so keen on activities that the political and cultural 'Elites' on the Continent seem to keen to despise in any case.

But how much business is going to move away from London?

The Brexit impact will be crucially dependent on the skill with with the Exit negotiations are handled by the British Officials.

Pussy-footing around - trying to be Gentlemen and not offend anyone - will not work. Only steely determination will be able to overcome the multinational cacophony of statists their water carriers in the EU Institutions. Their mindset is a million miles away from the British/Anglo-Saxon preference of Liberty over State intervention at all possible moments.

A key point that the UK has to make is that special treatment for (Financial) Services will not be accepted. Any service like financial transactions cannot be approached the same way as trade in goods. The equivalent of blocking financial business would be the same as unilaterally blocking the import of, say, German cars. So British negotiators must be prepared to be tough with any attempts to give a one-sided advantage to the statist - and ideologically motivated - bureaucracy on the other side of the table. If the other side does not accept this then the UK should insist that BMW is only allowed to sell cars when they are actually manufactured in Britain.

The insistence on the 'Four Freedoms' should also be exposed at what it is: an ideologically motivated dogma that has no place in any discussion about Free Trade. Adam Smith did not pretend that free movement of people between England and Portugal was essential when he gave his famous example to demonstrate the benefit of Free Trade. 

A detailed analysis would pour cold water on the arguments of those expecting a rush to the exit.

Securities Dealing - long before the Continent left the dark ages of Absolutism London had a thriving market. 1700 saw already all the aspects of Buying, Selling and Issuing that we are familiar with these days. Investors in Frankfurt or Paris are able to deal in Tokyo, New York and there is no reason they would not be able to deal in London. Most largers banks have local operations that serve local clients and feed business to the hub in London.

Issuing Bonds and Equities, IPO's - the same argument applies

M+A - again, local operations will be perfectly able to be managed out of London, the alternativ? Set up the major hub in Frankfurt or Paris? Does not make any sense.

Corporated Banking - major clients, eg Siemens, Nestle etc will still use the advise given by the local branches or the hub in London, depending on where the client contact is closest or the human capital is located. Smaller clients will continue to rely on local banks in their home market or - in some cases - deal with the branches of major foreign banks.

Retail Banking - no effect from Brexit. Only a handful of EU nationals have accounts outside their home countries.

Asset Management - already most funds sold on the Continent are domiciled in Luxembourg or Dublin, even if they are managed out of London. Good Luck to those who think their careers require a move to Paris or Frankfurt. But beware, the grass is not always greener and a more parochial environment awaits you.

Will there be job losses in the financial industry? Yes, but this will be more due to some other factors than Brexit: 1) The trend to passive investing, pressure on fees 2) Introduction of more technology and (3) transfer of lower-skill roles to cheaper locations (for example the larger Swiss banks have for quite a while sent operations staff to countries like Poland).

Apart from the usual arguments favouring London as the major financial hub in Europe the rivalry between continental centres - esp Frankfurt and Paris - will make it unattractice for businesses to move to either of them as they both will find it hard to build critical mass that overpowers London.
If regulators and politics in London are putting measures in place to attract the overwhelming part of financial business from the 'rest of the World' (6 1/2 billion and rising vs, just 400+ million in the rest EU) London should have a very bright future indeed.