HSBC, RBS and SocGen aside, most of Europe's big banks have now reported their second quarter results. In doing so, they've discussed the likely implications for their London-based operations. Invariably, these discussions have been shrouded in self-congratulation and ambiguity - a typical formulation is, "We're ideally placed to deal with Brexit and nothing's been decided, but..."
Nonetheless, it is possible to discern some meaning in all the obfuscation. That differs by bank, as follows:
During the call on Barclays' second quarter results, CFO Trushar Morzaria said the "bulk" of the business done by Barclays' corporate and investment bank doesn't involve passporting. The implication was that even if Britain loses its passporting rights and banks licensed in the City of London are therefore unable to operate freely in Europe, it will be no big deal for Barclays.
That sounds like good news, except Morzaria might be understating Brexit's potential impact on Barclays' London business.
This is because 50% of the revenues in Barclays' investment bank globally are derived from the Americas, with the remainder coming from Europe and America. Inevitably, therefore, London itself is responsible for a minority of the business of Barclays' investment bank. This could still mean that passporting is crucial for a pretty significant chunk of Barclays' UK operations.
In the worst case scenario, in which passporting disappears, Barclays' CEO Jes Staley said the bank has three options, none of which it's decided upon. Firstly, it could move business to a fully licensed subsidiary which would act as a new European hub (Barclays is already full licensed in Dublin, he added). Secondly, it could move local business to new local hubs like Paris or Frankfurt. And thirdly, it could continue operating in Europe out of the UK using MiFID equivalence rules. Staley seemed confident that MiFID could be an effective alternative to passporting, despite doubts raised by some consultants.
Deutsche Bank's John Cryan made some of the most interesting comments about Brexit.
Firstly, Cryan said that Deutsche's London business is technically a German bank anyway. "When we operate out of London, in the vast majority of cases, we operate out of Deutsche Bank AG itself," he explained cryptically during the analyst call. Cryan added that Deutsche's London business is, in fact Deutsche AG: it just has London after its name for the sake of local clients.
Here, Cryan seemed to be referring to the fact that Deutsche's UK business is simply a branch of its German business and isn't separately licensed in the UK. Unlike most US banks which are licensed in London and passport into Europe, Deutsche is operating the other way around. The implications of an end to passporting are therefore unclear. - Post-Brexit, maybe the UK government will simply allow Deutsche to keep on operating out of a business that's licensed in Frankfurt? Or maybe Deutsche can just get a licence in London?
Cryan added that if Deutsche does move jobs out of London, it won't be for regulatory reasons. "We view this [moving jobs from London because of Brexit] as something that will be client-driven," he explained. "We don't intend to do anything ourselves.....but if our Eurozone clients want us to be facing them from Europe... [we can]."
UBS was vague on passporting during the UBS results call, but during a subsequent interview with CNBC, CEO Sergio Ermotti suggested things will be just the same in London so long as there's still passporting.
"We have a very material presence in Europe in terms of locations where we could ship some of our businesses but it could well be that the UK has a passport into Europe and nothing changes," said Ermotti. Either way, Ermotti pointed out that, "we have a rolling 24 months time to outline our plans," after the UK triggers article 50.
Basically, UBS is in no rush. For the record, UBS's "very material presence" in Europe includes fully licensed German and French subsidiaries.
Credit Suisse's strategy for its London business looks prescient. The Swiss bank announced plans to move 30% of its staff out of London last October. By June this year, 1,250 out of 1,800 Credit Suisse jobs to be extracted from London had already gone. During the second quarter call, CEO Tidjane Thiam said the bank had already made savings after exiting a Canary Wharf office. In a separate interview with CNBC, Thiam pointed out that Credit Suisse has a platform in Dublin and is moving jobs to "major low cost locations in Poland and India."
Like Barclays, Credit Suisse said a comparatively small proportion of its London-based business relies upon passporting, If the worst comes to the worst, Thiam also said Credit Suisse has "optionality" to move operations out of London and into Dublin or Luxembourg.
Lastly, BNP Paribas told investors that its global markets in Europe is currently equally balanced between London and the mainland. "It’s a setup that allows us to serve our UK customers and our European continental customers," said CFO Lars Machenil, adding that BNP has been in London for 100 years.
Will this change? Machenil was vague. He said that at some point the UK will 'start a process that will clarify things', but that for the moment BNP Paribas is, "very pleased", with its set-up, and "very ready" to serve clients in the UK and Europe.
In other words, there's no rush and Machenil can't say what the outcome will be anyway.