The City of London's biggest international banks have moved fewer than 1,500 jobs from the UK in the run-up to Brexit, after slashing their estimates of the staff they need onshore in the EU after Britain leaves the bloc.
Financial Times research shows top lenders are preserving as much optionality as possible by moving fewer people from the UK to the 27 other EU countries as they strive to avoid costly actions while grappling with deepening political uncertainty.
London’s top 15 international banks have collectively cut fewer than 3,500 jobs in the UK capital since the Brexit vote in June 2016, amounting to about 5 per cent of their City headcounts. Fewer than 1,500 of those moves were linked to Brexit, interviews with senior bank executives have revealed.
Assets
A similar research by the Financial Times in late 2017, found that the same banks expected to move 4,600 jobs out of the UK in preparation for Brexit, which was originally due to happen on March 29th but has now been deferred to at least April 12th.
In the months after the vote, some reports suggested tens of thousands of jobs could leave London’s wider financial services industry. The latest Brexit tracker from EY said 7,000 jobs and £1 trillion (€1.17 trillion) of financial assets were set to leave the UK’s shores.
"We all made our worst case assumptions but have found in practice that we have been able to keep to a tight budget in terms of the minimum 'day zero' establishment," said James Bardrick, UK head of Citigroup. The US bank has moved about 80 people from London since Brexit was announced and still employs about 6,000 in the UK capital.
A person familiar with another large US bank’s plans said executives were “preserving optionality, and doing as little as they have to [or as little as they can get away with].”
An executive at a third US bank said it was “waiting and seeing until the end before moving people”.
The City’s most senior bankers warned that longer term London job losses could be multiples of those that have already moved if regulators take a tough stance on how much risk must be managed in the EU and if clients choose to do more business in the EU in future.
The 1,500 jobs moved so far – calculated based on banks’ headcounts in or around June, 2016 versus their most recent employee data – do not include staff scheduled to move immediately before Brexit, a group numbering about 300 at JPMorgan Chase, 30 to 40 at Goldman Sachs and a mere a handful at some other banks. But even with these planned additions, the London reductions will come in well below the banks’ original projections, executives confirmed.
Payroll
UBS has actually added more than 500 people to its UK payroll since the Brexit vote, as some outsourced roles were brought back into the Swiss bank, while BNP Paribas also employs more people in the UK now than before the vote following its July, 2017 acquisition of a British real estate company.
A senior banker at a fourth large US institution said its original plans were based on a “very hard Brexit scenario” that would have required all assets for EU clients based outside the UK to be moved out of London immediately, along with risk experts to manage those businesses going forward.
“As time has gone on, politicians, regulators and clients and practitioners have gotten a better understanding [of what is feasible in the initial stage],” this person said.
Most banks are betting they will have at least a few years to move UK books of business to the other 27 EU countries, and some believe they will not have to do it at all. Banks are also starting out with a “back-to-back” booking model, which means that trades can be carried out with an EU entity and the risk transferred back to London.
In the early days of Brexit, some banks suggested that as they moved jobs from London to elsewhere in Europe to deal with Brexit, they would also review their expensive London operations more generally and move some functions to cheaper locations such as India, local markets in Asia, or even the US.
That migration has not happened. “It was enough for firms to focus on being ready for a hard Brexit, and to make sure we could serve our EU27 clients in a way that met regulatory requirements,” said Clare Woodman, Morgan Stanley’s head of Europe. Staff numbers for Morgan Stanley in London are virtually unchanged at 5,000 since the Brexit vote.
Jonathan Lewis, head of Nomura Europe, which has reduced its London headcount by about 300 since the Brexit vote as part of a wider restructuring and made virtually no Brexit-related transfers, said some of those wider international moves could still occur.
“Read some comments our group CEO is making; [It’s ] all about reducing Europe,” Mr Lewis said, adding that his boss at the Japanese bank linked the moves to Brexit, “not because of it, but because London has been a centre for talent, global operations and support, which is a high quality but expensive model”.
Models
In a post-Brexit world, Mr Lewis’s boss “is questioning if we really need” global operations in London. “In the long term the changes to operational models will be a bigger negative than the technicalities of who needs to be sitting in what city to trade or do M&A,” Mr Lewis added.
Ms Woodman at Morgan Stanley said the longer term future of London depended on how well European and UK markets interconnect, and whether EU27 clients prefer to deal with local or UK entities. “Some European clients may be able to continue to transact with London,” she said. “We have sized up for the activity we think we’ll see in the foreseeable future. . .we’ll continue to evaluate the size of the business.”
Harm Bots, head of Royal Bank of Scotland’s new operation in the Netherlands, said that if its Amsterdam base needs to grow from its planned 100 to 150 people to deal efficiently with clients “then we’ll consider it”.
“The question is what is the landscape after Brexit,” he added.
At HSBC’s investment bank, where about 250 people have been moved so far, leaving 4,200 colleagues in London, Samir Assaf, global banking and markets boss, said there could be a “lot of people moves” if regulators rule against back-to-back booking models.
“The topic will evolve over time. What we have said is the upper number could be up to 1,000,” he said.
Time-consuming meetings on Brexit
In the 33 months since the Brexit vote, the top 15 international banks operating in London have collectively spent billions of euros, taken on new buildings and licences across the EU and racked up countless hours of meetings to cope with the disruption.
Bank of America has publicly disclosed spending up to $400 million (€356 million ) , as it added 300 new jobs between Dublin and Paris, gained a new banking licence in Paris and cut London headcount by about 250 from June 2016 to now.
Over at JPMorgan, costs are running at more than $100 million, after moving “several dozen” staff from London since June, 2016, adding an undisclosed number in the rest of the EU and applying for new licences in Dublin and Luxembourg.
Before Brexit, HSBC already had a significant operation in Paris, which is set to be its main trading hub in the euro zone after Brexit. But it has still budgeted costs in the "low hundreds of millions" according to investment bank boss Samir Assaf.
HSBC’s plans include a “full project management team that has spent the last two years full time on Brexit as well as external advisers for legal, tax, home office advice” and “a lot of time of management”.
“I have a monthly meeting – an update on Brexit, and it consumes time going to meetings with regulators: the actual regulators and the future regulators,” Mr Assaf added.
RBS expects to spend £100 million to £150 million on its Brexit preparations and is counting on running costs of about £100 million a year as a result of both Brexit and the UK’s new rules on banks ringfencing their consumer facing operations.
“The way that all banks are setting themselves up is in multiple locations,” said Harm Bots, head of RBS’s Amsterdam hub. “There is not going to be a comparable [financial centre] to London that emerges in Europe. And over time, with technology, one physical location to operate from becomes less important.”
“We haven’t done time sheets. But there’s no question that a lot of management and people time has gone into Brexit preparedness and assessing and mitigating risks; that’s the reality,” said Clare Woodman, head of Europe at Morgan Stanley, which has added about 150 people to its EU operations since the Brexit vote, but not disclosed any costings.
“There is an opportunity cost, but we haven’t spent much time quantifying that, we just needed to get on with it,” she said.
Morgan Stanley created its new EU hub in Frankfurt, where it already had a banking licence, with other roles transferring to Paris, Milan and Madrid.
Goldman Sachs has had up to 300 people working on its Brexit planning at any given time, as the bank found new offices in Frankfurt, Dublin, Stockholm and Milan and a new licence in Ireland.
At Nomura, where Brexit changes have included taking additional office space and hiring about 50 people in Frankfurt, senior executives are spending almost a third of their time on the project. – Copyright The Financial Times Limited 2019
