So, what next? What happens when you go back to the office on Monday? If you’re a finance professional in London, everything has changed. Below, we’ve attempted to answer some of the key questions which will define the near future.
1. Will my London finance job still exist in six months’ time?
Will you still be working in London, doing what you’re doing now, come January 2017? That depends. Strategy consultants tell us banks in London are in the process of implementing contingency plans that could see tens of thousands of jobs shifting out of the City of London, starting as early as next week. Jamie Dimon already threatened to move up to 4,000 jobs out of the City and there were rumours – propagated by the BBC and heavily denied by the bank – that Morgan Stanley was preparing to move 2,000 jobs to Frankfurt today.
In reality, however, some jobs are likely to be more affected than others. As we noted previously, some professions could actually benefit from Brexit: lawyers, consultants, project managers, European regulatory experts, will all be in huge demand. Senior M&A bankers could also do ‘ok’ from Brexit, although deals are likely to be put on hold in the short term. The pain in London will be felt acutely in areas like risk, compliance, and trading. “Entire EU compliance teams are based in London,” points out one recruiter. “That’s going to have to change.”
2. Will I be able to find another job if I lose my current one?
Again, it all depends what you’re doing. If you’re a consultant specializing in change management and offshoring projects, you’ll be fine. If you work for a major bank and you want a new job in a major bank (in London), you won’t be. “There’s going to be a lot of pain at the big banks in the next month,” predicts the chief executive of one recruitment consultant in the City. “A lot of people are going to be on the Street.”
At the same time, however, he says his firm is “busier than ever” and even won “four or five mandates” after the Brexit vote had been cast. – “We’ve got a really full order book and have already picked up more work. Banking is going to be very tough, but boutiques are still hiring in M&A, and consultants are hiring a lot too.”
He maintains that things aren’t as bad as 2008: “Back then, the whole of capitalism was falling over.”
3. Will I be able to continue working in London if I’m not a UK citizen?
Almost certainly, yes. Although Nigel Farage’s “new Brexit prime minister,” is likely to push for a renegotiation of the free movement of people as soon as possible and although EU leaders are calling for the UK to leave the EU as quickly as it can, the British government will be in no rush to do away with thousands of highly qualified, high-earning bankers. The UK’s existing points system for non-EU people working in the UK favours the young, the highly educated and the earning – finance professionals, basically.
At the same time, any EU nationals who’ve been working in the City for more than five years will be able to apply for permanent residence, as detailed here.
4. Will I even want to continue working in London if I’m not a UK citizen?
Whether you’ll actually want to carry on working in London if you’re a ‘migrant’ is another question. Deutsche Bank macro analysts suggest the vote to leave was motivated by primal fears: “Our brains respond disproportionally to negative messages and symbolic threats. And all animals, including Homo sapiens, are observed to fight harder when defending territory than when trying to gain ground. That’s why immigration won the day.”
This isn’t nice if you’re a non-Briton in the City. As one Romanian intern told us earlier this week: “I’m scared to say which country I come from. If you want to work in finance, the City of London is still an excellent place to start your career, but it’s not somewhere I want to grow old. London cannot be a home to me, and that’s a shame.”
With taxes likely to rise irrespective of the fate of George Osborne and the value of the pound falling, London is also less appealing than it used to be. – The upside is that ‘house price growth is likely to go into reverse.’ So, maybe you’ll be able to afford a flat after all.
5. Will I get a higher bonus now that London’s leaving the EU?
Maybe, but probably not. As we noted earlier this week, the EU bonus cap could be repealed now that Britain doesn’t have to abide by nasty EU legislation any more. However, this assumes that the UK is able to eschew EU edicts at will. This probably won’t be the case if it wants to continue accessing European markets. More likely, therefore, is that the UK will be compelled to maintain the bonus cap for large banks, but will have greater freedom to ignore it when it comes to small ones.
6. What happens to British banks now we’re no longer in the EU?
British banks have it tough. Shares in Barclays and RBS fell 17% on Friday. As we reported previously, analysts at Bernstein research think Barclays is in for a particularly harsh time: “Simply put, the bank has the highest gearing to London in terms of their UK portfolio. It also has the highest gearing to Investment Banking revenues which we believe are going to tank. It’s also the biggest Cards player in the UK with more than 25% market share. And it has the lowest printed capital level at 11.3%. The only thing going for it is the fact that it is a “cheap stock” to start with.”
7. What will the end of ‘passporting’ mean in practice?
The really big issue for banking jobs in London is the end of so-called “passporting” into the EU. Dating back to 1993, passporting has allowed banks headquartered in London to operate across the EU using a branch network without regulatory authorization in each country.
In a note out last year, the Bank of England pointed out that in the absence of passporting after a Brexit, a London-based bank that wants to operate in the EU will need to become authorized in each country. Without passporting rights, and absent a so-called “equivalence” agreement, whereby London is able to access European markets because its regulations are deemed ‘equivalent’ to those in Europe, London-based banks would find it impossible to operate.
In a worst case scenario, Law firm Ashurst says it’s plausible that the end of passporting could mean that UK-based firms, “lose their MiFID passports and therefore cannot deal with EU-based clients (at least in the short term, as it is unlikely the UK would receive a MiFID equivalence assessment in time). ”
That’s huge: MiFID II governs trading in everything from equities to fixed income securities, derivatives and money market instruments. It explains why banks are in such a hurry to activate contingency plans and shift role to European subsidiaries.
8. What happens to the euro traders and the euro-clearers?
European regulators have already expressed doubts about the consolidation of euro-denominated trading in the UK. “It is already very difficult for euro members to accept that our currency is largely traded outside the currency area, beyond the control of the ECB,” wrote Christian Noyer, a former ECB vice president and Bank of France governor, earlier this year. How many people work in banks’ euro trading divisions in London? We don’t know. However, HSBC’s threat to move 20% of its London global markets employees to Paris post-Brexit is an indicator of the proportion of jobs that could be affected overall.
Similarly, the UK houses major euro clearing houses like LCH.Clearnet and Intercontinental Exchange’s ICE Clear Europe, both of which are now likely to move to a location within the EU. The European Central Bank has indicated that it would be fearful of its ability to work with non-EU clearers in the event of a liquidity crisis. Compared to the movement of traders, the effect on jobs of clearing houses moving overseas could, however, be limited. – LCH Clearnet employs only 458 people in the UK.
9. Paris, Frankfurt, Dublin, or….Madrid?
Where will the jobs leaving London go to? HSBC is eyeing Paris, Morgan Stanley is eyeing Frankfurt and Dublin, and J.P. Morgan is said to be eyeing Frankfurt and Madrid.
While Frankfurt and Paris are the obvious options for Deutsche Bank and BNP Paribas or SocGen respectively, it’s less obvious that large US banks will want to move there. Witness the chart below…
10. Is it worth it?
Lastly, you might want to ask yourself whether you want to continue working in finance anyhow. – If banks do indeed activate contingency plans and cut thousands of jobs in the months to come, there will be more people chasing finance roles in the City of London than ever.
Then again – and irrespective of pay – which other industry allows you to stand at the nexus of global macroeconomic events on a daily basis? ‘Looking forward, global market outcomes will be shaped by the progression of central bank intervention, global risk appetite, political risk, and economic contagion,’ says Mark Haefele, global chief investment officer at UBS.
Working in a bank in London may never have been more harsh, but it’s rarely been more interesting.
Photo credit: powermajor