The sky might not be falling in on the City of London immediately, but the fissures are starting to make themselves felt. Citi, Morgan Stanley and Russian bank VTB each made distinctive noises about relocating staff from London today, while recruiters point to a jostling for position of among U.S. M&A boutiques in Frankfurt.
Robert Rooney, the chief executive of Morgan Stanley International, told a conference that, without a “stable and long-term assured commitment that we would have access to the single market” then Morgan Stanley will unquestionably, “have to do a lot of things that we do today from London somewhere inside the EU 27.” James Bardrick, Citi’s UK head, said the bank could start moving staff out of London in 2017. And Herbert Moos, VTB’s deputy chairman, told the Financial Times that his plans for expanding in London are on hold post-Brexit, while Paris, Frankfurt or Vienna are being considered as alternative European hubs for the Russian bank.
While Morgan Stanley and VTB are voluble about their plans for ditching London, recruiters point out that U.S. M&A boutiques have been quietly building a presence in Frankfurt for over a year. Evercore, Houlihan Lokey, and Raymond James have all moved to establish footholds in Germany, and banks too are reportedly building their German IBD teams.
Evercore and Houlihan Lokey established a German presence last year (ie. pre-referendum). Evercore acquired German boutique Kuna & Co. and 10 advisory professionals in May 2015. Houlihan Lokey acquired the German operations of Italian boutique Leonardo, along with 25 bankers, six months later. U.S. boutique Raymond James acquired Munich-based Mummert & Company Corporate Finance GmbH, plus 20 M&A German M&A bankers in June 2016. “They’re ramping up,” says one London recruiter. “It’s happening quietly, but it’s happening.”
U.S. boutiques’ sudden interest in Germany comes despite a 36% decline in German investment banking revenues in the first half of this year according to Dealogic. Frankfurt recruiters say U.S. boutiques are establishing a presence on the ground ahead of Brexit, and that they aren’t the only ones. Elena Barclay, principal at Dartmouth Partners in Frankfurt, says banks are now more interested in hiring German speaking juniors in Frankfurt than in London: “In the past, they might have hired for sector teams in London. – Now it’s much more about basing people in Frankfurt from the outset.”
Like London, however, Frankfurt recruiters are mostly still twiddling their thumbs and waiting to see how Brexit plays out. Carola Hansen, a Frankfurt-based banking recruiter at Brownian Motion, says there’s been no rush of local hiring and that most banks are as cost constrained in Frankfurt as they are in London. – But if jobs do move to Frankfurt? There are people to fill them: “We have a lot of potential here,” says Hansen. “There are a lot of talented youngsters and more experienced candidates – there will no problem finding the talent in Frankfurt.”
This should come as good news to Morgan Stanley and VTB as they look about for alternatives to the City. In the immediate aftermath of the referendum there were suggestions that Morgan Stanley intended to move 2,000 jobs to Frankfurt and Dublin, something the U.S. bank later denied. Any moves away from VTB are likely to be much more modest: after promising to increase international headcount by 40% in 2012, VTB has spent the past four years cutting back. Nonetheless, VTB still employs “hundreds” of people in London according to the Financial Times. – If it wants M&A bankers in Frankfurt, it might want to start lining them up soon.