New York to gain most from Brexit – Banks move to US

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New York to gain most from Brexit?

It may well be New York, rather than the European Union who emerge from Brexit financially victorious, if negotiators for both sides don’t get pragmatic. The warning came from lawmakers, concerned that a lack of clarity concerning the future of relations between Britain and the EU, in the wake of Brexit, could result in financial firms and banks setting up subsidiaries and transferring workers abroad.

Financial Experts in the US

A UK House of Lords EU Committee report outlines the potential loss of expertise that would result from such moves, leaving a void in cities that are currently ‘far behind’ New York and London, like Frankfurt and Paris. This gulf would be difficult to fill and could leave these cities floundering as financial centres.

EU firms rely on the services provided in the U.K., and pain caused to the U.K.’s financial sector will not be the EU’s gain, but New York’,” said Kishwer Falkner, head of the inquiries into the European Union financial affairs on the panel. In his statement, Falkner added: “We are in danger of a lose-lose scenario if pragmatism does not prevail.

UK Financial Sector

Around 1.1 million individuals are employed by the U.K. financial services industry, which is 7% of the UK’s economic output. As an industry, finance is about to become the front line and fiercest battle for Brexit negotiations, with France, Poland, and Germany attempting to lure insurers and banks from London. Brexit Secretary David Davis, and Philip Hammond, the Chancellor of the Exchequer, have both vowed to ensure London retains its position as a global finance hub.

British Prime Minister Theresa May has been open and vocal in stating she will trigger the UK’s exit from the EU and the Brexit process before April. In light of this, the Lords panel have made it very clear that one of the earliest goals in Brexit negotiations must be to agree a transitional period to prevent U.K. based financial services firms from relocating on the basis of a worst-case’ scenario.

It is unclear whether their advice and warnings will be heeded, but the future of the UK financial sector in the wake of June’s Brexit vote is looking less certain with each passing week.

Trading Impact

The effect of any changes in the UK financial sector will be felt across many underlying assets. The most obvious will be in the major currency pairs. GBP and EUR are already suffering against the USD and European in fighting over Brexit is likely to see that continue – particularly if it ends up benefitting New York directly.

Elsewhere, individual banking equities will be volatile. Some banks, with a global customer base, may see positive effects of relocation. Other, more European – or even UK – based operations may suffer.

New York stands to gain from London’s Brexit pain

Banks pondering where to relocate U.K. employees

For decades New York and London have fought over which city is king of the financial world. It can be a silly, jingoistic sort of argument, but it’s over something quite real: the billions of tax dollars paid by lavishly compensated bankers, traders and asset managers.

Not so long ago London appeared to be winning—which concerned leaders here so much that in 2007 then-Mayor Michael Bloomberg and Sen. Charles Schumer put their names on a report saying New York had to emulate how London did business. “If we do nothing, within 10 years—while we will remain a leading regional financial center—we will no longer be the financial capital of the world,” the report warned.

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Then came Brexit.

With the United Kingdom scheduled to leave the European Union on March 29, London’s standing as a world financial center is facing a major hit. U.S. banking leaders with lots of operations in London are busy getting to know new regulators and tweaking the legal structures of their overseas divisions. But mostly they are figuring out how many employees to take out of London and where to send them.

“It’s a real overhaul of everything we do,” Catherine Bessant, Bank of America’s chief operations and technology officer, said last week at the annual meeting of the Securities Industry and Financial Markets Association, Wall Street’s chief trade group.

European leaders hope London’s trading, investing and corporate-merger activities migrate to such cities as Amsterdam, Dublin and Frankfurt. BofA is building a European trading hub in Paris, and last week the Financial Times said BlackRock and JPMorgan have their eyes on the French capital.

But Damian Nussbaum, director of economic development at the City of London Corp., which governs the city’s historic financial district, said over time he expects much of the financial activity leaving London will migrate to New York. That’s because it’s more cost-effective to do business in one big marketplace than in several smaller ones.

“It will be a gradual process as institution after institution decides their European cost bases are unsustainable given the revenues they’re getting,” Nussbaum said.

Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics, said for language and cultural reasons, senior financial executives in London would prefer relocating with their families to New York than to, say, Frankfurt.

“New York,” Kirkegaard predicted, “will become the path of least resistance.”

It’s a messy situation and all the more so because it’s unclear what sort of divorce agreement the EU and Britain will hammer out before the March deadline. “We will find the nuggets of good,” BofA’s Bessant insisted.

A lot of nuggets will be coming New York’s way. Up to 20,000 finance jobs will leave Britain or be created elsewhere as a result of Brexit, according to the U.K. Centre for Economics and Business Research. That translates into as much as $2.6 billion in lost annual tax revenue.

Should half of that cash make its way to the city, it would amount to more than what congestion pricing could raise. New York already has a Brit in charge of fixing our subways. Wouldn’t it be jolly good if Brexit refugees helped to pay the bill.

Bloomberg

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