It’s official: for all those who thought that Brexit didn’t really mean Brexit, or that a ‘red, white and blue Brexit’ would still somehow also admit some of the EU’s gold stars, reality has struck home. UK prime minister Theresa May will today outline the UK’s approach to Brexit in more detail than ever before for an audience of ambassadors from across the world. If you work in the City it will not be easy listening.
May is reportedly set to say that Britain needs a clean break from the EU. There will be no compromise in immigration, no compromise on sovereignty and no remaining in the single market. There will also, therefore, be no more of the passporting that 5,500 firms in the UK banking industry currently rely upon when they trade with Europe. Without passporting, UK-based banks working with clients in Europe (eg. most large U.S. investment banks) will have to rely upon the vagaries of ‘equivalence’ (ie, matching regulations with the EU in order to access EU markets) – and as Bloomberg points out, this is far from ideal. Firstly equivalence can be withdrawn whenever the EU feels like it. Secondly, equivalence doesn’t cover, ‘lending, deposit taking, payments services, or selling hedging products or insurance through banks.’ Thirdly, the City of London will have to abide by regulations set by Europe, over which it will have no influence.
UK lawmakers are seemingly trying to convince themselves that banks are exaggerating the dangers of lost passporting. In December, ‘Brexit minister’ David Davis reportedly said passporting was unimportant, and accused banking bosses of over-egging its significance. Ahead of May’s speech, the UK’s Treasury Select Committee has reportedly asked senior bankers like HSBC’s Douglas Flint to reiterate the precise threat that Brexit poses to the finance industry in the belief that he’s been scaremongering. Flint previously warned the Select Committee that banks will need to start moving jobs soon unless a satisfactory solution to banks’ position post-Brexit is arrived at. Flint said it took HSBC three years just to move staff from London to Birmingham. Given that Brexit will take in mid-2019, HSBC is therefore already behind schedule if it wants to shift jobs to Paris or Ireland.
Ever-optimistic, Britain’s Brexit and banks supporters have a plan. They’re still gunning for the kind of ‘equivalence plus’ regime sketched out by Bank of America last September. In this Elysian ideal, UK and EU financial regulators will work together to establish common European financial rules and those rules won’t be altered at the whim of the EU. Equivalence will be a matter of mutual agreement and won’t be withdrawn overnight. Unfortunately, and as the Wall Street Journal points out, these demands amount to, “a new, bespoke deal that gives Britain-based banks all the access they have now.” And that sounds very unlikely indeed.
The only shred of City hope in May’s speech will come from her expected willingness to espouse “transitional arrangements”, which she will refer to as an “implementation phase”. Banks like J.P. Morgan and HSBC have been asking for an implementation phase of three to five years, but Davis said he saw no purpose in such arrangements before Christmas. Now it seems there will be a transition to the post-Brexit reality, although no one knows how long this will last. In any case, a transition may make little difference is the new reality is as unpalatable to the City as currently seems likely.
Separately, a senior M&A banker has been slapped down over a derogatory restaurant review. The Observer reports that Mark Brady, global head of M&A at William Blair, wrote a one star review of a top Chicago restaurant which customarily charges customers in advance after he was charged despite not turning up for his meal. “Complete assbags,” wrote Brady after his refund was refused. “We missed the date since there was no confirmation notice and they kept the whole payment…” The restaurant owner was stung into responding, pointing out that two confirmation emails were sent automatically and that Brady’s complaint makes no economic sense, as per the excerpt below.
Brady subsequently deleted the review.
Pay for senior bankers in London is already 20% below Wall Street, and it needs to stay that way. (Financial News)
After Brexit, EU nationals in Britain will probably be subject to work permits and visa waivers. (Financial Times)
Sergio Ermotti at UBS: “We have a Frankfurt base where we house our wealth management operations and not just that… We have a framework in place and infrastructure that can be expanded if needed.” (Reuters)
Brexit “will make Frankfurt the clear European centre for financial market regulation and simultaneously, Frankfurt might indeed become the European centre for supranational risk management.” (Business Insider)
Dutch ‘Waterland Private Equity Investments’ is opening in London” (Financial News)
Can computers and machine learning outperform human experts in long/short equity trading? (Medium)
Maybe that criticism of economics you’re reading is unfounded? (Chris Auld)
Photo credit: City of London by Andy Sedg is licensed under CC BY 2.0.