The dust is settling. Nearly a week has passed since the sky fell in and some people in the City of London are poking their heads out their bunkers, only to find that – the sun is still out, sort of.
If you’re of an optimistic frame of mind, there are reasons to believe that Brexit may not lead banking jobs to move to Europe, that it may not prompt banks to rush through another round of cost-cutting under the guise of existential ex-EU despair, and that things may actually be ok.
Those reasons are as follows.
1. Some people made a lot of money out of this
It’s not just Crispin Odey and the other hedge funds that shorted everything which benefited from the Brexit vote, the Financial Times says some banks did too. “Banks had a monster day on Friday,” a senior banks analyst in London told the paper. “They probably made 5-10 times their normal daily P&L [profit and loss].”
The pessimist’s rejoinder: J.P. Morgan saw this coming, its analysts predicted macro desks would do very well in the immediate aftermath of Brexit and less well thereafter as activity quietens in the second half.
2. The TALENT is in London
Why would a bank move to Paris or Frankfurt or Dublin or Amsterdam when London is where the people are?
“The talent is here,” says David Reynolds at search firm Scott Reynolds. “People have lives in London. They want to be here for personal reasons and I don’t think that’s going to change.”
If people don’t leave London, banks could be in a spot of bother. Yes, Credit Suisse received “hundreds” of CVs for its trading jobs in Dublin, but only four of those CVs were actually relevant.
The pessimist’s rejoinder: The talent may be in London now, but it won’t be for much longer. Talented Europeans like Alberto Gallo at Algebris Investments have commented on how many fellow international professionals in London are thinking of going elsewhere as they no longer feel at home.
3. Finance recruiters are cool with it
If anyone’s falling apart over Brexit’s impact on London banking jobs, it should surely be recruiters who make their money from placing people. Yet, they seem surprisingly unperturbed. “It’s certainly gone very quiet but no roles have been pulled and there are encouraging signs saying business as usual,” says one recruiter specialising in fixed income roles. “It might be quite volatile and painful in the short term but going forward we should be alright – hopefully,” he says.
The pessimist’s rejoinder: Recruiters are only filling existing roles, created pre-Brexit. “There aren’t many new mandates about now,” says one.
4. There’s MiFID
Forget passporting, the new world on the street is MiFID, or to be more precise – MiFID II.
As Financial News points out, MiFID II ‘crucially contains new “passporting” rights that allow non-EU firms abiding by broadly similar rules to offer their services in the EU.’
Even better, it’s due to come into force in January 2018 – before Britain officially leaves the EU. All going well, MiFID II could therefore simply allow for a continuation of the status quo.
The pessimist’s rejoinder: Financial News admits that politics might get in the way. Also, MiFID regulations have a tendency to get delayed and lawyers already told us that MiFID II might be too vague for banks. The regulations are “patchy” according to Rachel Kent, a partner at Hogan Lovells, who said banks, “might want to restructure their businesses now in case there is no other complete solution.”
5. Theresa May looks promising
It’s not just Brexit. Part of the problem is that Britain has no real government. This will soon change. As the chart from Barclays shows, the front runner as the next leader of the Conservative Party is Theresa May. And Theresa May is in no hurry to trigger article 50: Barclays notes that her stated position is not to trigger Article 50 this year, so there will be no rapid changes.
6. It’s not systemic
As we noted earlier, Brexit is not Lehman. It’s “seismic not systemic,” according to analysts at Morgan Stanley.
The pessimist’s rejoinder: While we may not be on the cusp of a full financial crisis, it’s too soon to deduce the full impact of Brexit on banks and the British economy. Economists at UBS say that in the wake of a shock, growth tends to decline over the following two quarters.
7. Banks are in no rush to do anything
“Daniel Pinto at J.P. Morgan has already said the bank’s operating model will remain the same for the time being,” says the head of one London search firm. “No one’s packing their bags. No one’s looking for houses in Paris and Frankfurt – it’s way too early, we just need to take a deep breath here. Banks won’t act until the negotiations are finalized and we know what deal we got.” Accordingly, SocGen, Jefferies and Barclays have all said they’re in no hurry to relocate.
The pessimist’s rejoinder: At the British Banking Association conference yesterday, Goldman and Morgan Stanley disclosed that they’ve already pre-rented offices in Frankfurt as a contingency if they can’t get right deal for London. Banks may not be in a rush, but they do seem to be laying plans.