As banks hatch plans for doing business in post-Brexit Europe, London is experiencing its first round of defections. MUFG, Japan’s biggest bank, will likely establish a new base in Amsterdam, according to the Financial Times (paywall), citing unidentified sources. This comes after several banks with London bases chose Frankfurt for their new continental European hub.
Big international financial firms that traditionally relied on London as their hub to access to the EU’s single market are making new plans now that Britain will soon leave the bloc, likely ending the preferential access that UK-based finance firms have to the EU markets. At least three major banks—Morgan Stanley, Citigroup, and Standard Chartered—are bolstering operations in Frankfurt, while HSBC has opted for Paris. Unlike MUFG, other Japanese banking giants are expanding in Germany.
So far, London’s huge financial sector isn’t hemorrhaging jobs. Finance and related services employ some 2.2 million people in the UK, and about 751,000 in London, according to lobby group TheCityUK.
MUFG will move fewer than 100 jobs to the Netherlands, at least initially, according to the FT. That’s in the neighborhood of the amount that Citigroup and Morgan Stanley reportedly intend to relocate. HSBC could move as many as 1,000 employees, and says it may cost the bank $300 million in expenses. However, these early figures could rise substantially depending on how negotiations between the UK and EU unfold before the early 2019 deadline for a formal divorce.
Many in the financial industry expect the UK to remain a powerhouse post-Brexit. The city still has a geographical advantage as a crossroads between the Americas, Europe, and Asia. The UK’s legal system and business-friendly regulations are also seen as favorable for the industry, not to mention the sheer inertia that comes from so much expertise and capital being established there for so long.
Still, Brexit negotiations have only just begun. The outcome of the battle between Frankfurt and London for clearing euro derivatives (paywall), a systemically important piece of market plumbing, after Brexit probably won’t be known for months, if not years. London’s LCH clearinghouse safeguards trillions of euros of transactions, and hundreds of jobs at least are at stake. Similar calculations can be made for other financial markets and products currently dominated by London.
In the meantime, it doesn’t seem like any single EU city has emerged as the sole winner at London’s expense. Amid intense jockeying between European capitals, the spoils seem to be spread around, from Dublin to Paris, Frankfurt, and Amsterdam. That may not be ideal for the bloc as a whole, since there are advantages of scale in many financial businesses. As for London, Brexit looks like a glancing blow to the industry that accounts for a huge share of the local economy. For now.