The British government thinks banks are exaggerating about Brexit. We know this from Brexit Minister David Davis, who reportedly said before Christmas that banks need to "move on" from the referendum and to get over their obsession with passporting, which isn't as important as they think. We also know it from the UK Treasury Select Committee, which keeps recalling senior bankers to discuss Brexit because it thinks they're giving misleading information about its impact.
Well, guess what? Turns out those bankers weren't exaggerating after all. This morning at Davos, Andrea Orcel, the apolitical, Italian head of UBS's investment bank, tried shouting into the UK government's echo chamber. The government would do well to listen.
1. This isn't about extending the benefit of the doubt - it's about harsh reality
Forget Theresa May's bold claim about "no deal being better than a bad deal." Forget the fig leaf of an unspecified 'transitional arrangement.' Banks can't wait to see what happens on Brexit. They're not interested in politicians' platitudes. They're interested in what's really happening and in the absence of anything concrete they need to start implementing contingency plans.
"The only thing we can do is to anticipate the worst," said Orcel. "We can't be optimistic. At the worst, we anticipate a de-minimus agreement between the UK and the EU and that there won't be a transitory period."
2. It takes time to move operations. Banks have no choice but to begin the process soon - irrespective of any reassurance from the British government
Back in September, HSBC chairman Douglas Flint told the Treasury Select Committee that moving jobs because of Brexit could take years. It took HSBC three years just to shift jobs from London to Birmingham, Flint said.
Orcel said much the same this morning, although he cut the implementation time in half. It will take UBS between 18 months to two years to execute a "transformation" of its European operations because of Brexit according to Orcel. He added that, "the moment the UK invokes Article 50, we need to be in execution mode. We need to move whatever we need to another jurisdiction."
In other words, it begins March 2017. Flint also said today that it will move jobs to Paris in 2019 when Brexit becomes effective, so we assume HSBC has begun activating its plan already.
3. Banks will set up new EU hubs. And the Brexit agreeement - determined by particularly the EU - will depend upon how well populated those hubs are
In September 2016, UBS CEO Sergio Ermotti said the bank could move 1,500 of its 5,000 jobs out of London because of Brexit. UBS chairman Axel Weber suggested today that around 1,000 London jobs could go. Orcel, however, went one step further in spelling out what will determine the degree of displacement: "How much we move is dependent on what the sub-jurisdiction is going to concede in terms of transitory and permanent agreements...," he said.
In other words, this isn't just about the UK government's demands, it's about what the EU is prepared to concede. This is self-evident. It's also something the UK government is in danger of overlooking amidst all the bombast.