Brexit Update: Who is Winning the Battle for London’s Business?

By John Ellis 

Correspondent, History Undergraduate

While much of the recent news regarding Brexit and its effects has been both murky and prone to sudden change, the response of the financial sector has remained consistent and predictable. Throughout the process financial professionals have worried over the loss of the ‘passporting rights’ which currently allow firms based in the UK to conduct business in any other EU country without further authorization.


As the 29 March 2019 Brexit deadline continues to draw closer, banks and other financial service providers have begun to implement exit strategies designed to limit their presence in the City of London and thus their exposure to any Brexit-related chaos. While the English capital currently remains ahead of all other EU cities in financial services spending, the gap is narrowing rapidly as European member-states battle for potential jobs and tax revenue created by the country’s fleeing financial professionals.


In the immediate aftermath of the Brexit referendum Frankfurt appeared primed to seize London’s crown as the financial center of Europe, using its convenient location, strong financial credentials and relative political stability to become the clear second choice for bankers fleeing the City.  As the longtime home of several of the continent’s most prominent financial institutions, among them the ECB, Deutsche Börse, and Deutsche Bank’s headquarters, Frankfurt boasts an unmatched financial infrastructure.  Indeed, German regulator BaFin is of the few on the continent with experience in monitoring the more complicated transactions carried out by the biggest global banks. Frankfurt has largely leveraged its advantages well, winning billions in assets and job commitments from many of the largest American banks.


Recent developments, however, have proved far less optimistic.  In addition to the political instability created by Chancellor Merkel’s decision to step down from her position as party leader in December, Frankfurt’s appeal has been somewhat hampered by the continuation of an extensive government-backed tax probe, one which has involved recent raids on offices belonging to DZ Bank, UniCredit and even BlackRock.



As a result, much of the attention in the last few months has instead been focused on the continent’s other existing financial center, Paris. Recent articles have trumpeted the French capital’s ability to win valuable financial trading business, highlighting the city’s decreasing labor costs as well as its enduring cultural cachet. Bank of America, Citigroup, HSBC and BlackRock all appear set to significantly expand their operations in the city, and while JPMorgan has kept their plans closely guarded, CEO Jamie Dimon has insisted that ‘Paris will be a major beneficiary of Brexit whatever happens.’ President Macron’s government has certainly delivered on its reputation, orchestrating one-on-one meetings with leaders such as BlackRock CEO Larry Fink and providing what are perhaps Europe’s sweetest tax incentives for expat bankers.


Unfortunately for Paris, however, many of its biggest commitments remain indefinite and unconfirmed.  While anonymous investment bank bosses continue to insist that the city is the industry’s ‘number one choice’, JPMorgan chief Daniel Pinto’s emphasis on their ability to shift locations if an opportunity to ‘consolidate’ presents itself offers a warning for those celebrating the French capital’s victory this early



Despite the fact that continental cities such as Frankfurt and Paris have received the vast majority of popular attention, a recent report from EY suggests that Dublin has been the most successful in convincing companies to relocate, maintaining a 40% lead over second-place Frankfurt.


(Data provided by EY)

Upon closer examination, this selection makes perfect sense for firms wishing to minimize transitional friction, as Dublin’s English-speaking populace and physical proximity to London make it the most similar city by far.  Ireland’s government has also built a recent reputation for generosity towards large global corporations, with one study from earlier this year declaring the country to be ‘the world’s biggest tax haven.’ The city remains most popular with investment businesses originating from the UK, as perfectly exemplified by British hedge fund Marshall Wace’s recent expansion there. Dublin’s case is somewhat harmed, however, upon further review of the numbers.  While the raw number of committed firms is certainly impressive, Dublin appears to have lost the most valuable prizes to its continental rivals, instead retaining a collection of smaller commitments from a variety of investment operations.  If a Brexit deal passes, look for whether any Ireland-based provisions are likely to alter the incentives.



While the aforementioned cities have generated the vast majority of Brexit-related headlines, several others appear primed to take advantage of the UK’s decision to leave.  Dutch regulator AFM have requested an increase in funding to manage an expected influx from over 20 trading firms, led by the recently-announced relocation of an entire $240 billion repo and bond trading market from London to Amsterdam. Luxembourg, meanwhile, has already convinced over 30 financial companies to expand their presence in the country, luring asset managers and their families with the opening of four new state-run English-language schools to a country which already acts as the world’s second-largest fund market.  Even less prominent financial centers in Milan and Madrid have each been selected as the new hubs for multiple investment banks each. The biggest beneficiaries, however, might sit outside of Europe entirely. In spite of the Chinese market’s recent stumbles, Asia remains the world’s fastest-growing and most promising economic region, as Chinese deregulation and the Bank of Japan’s ‘Abenomics’ regimen have continued to pay dividends for both western investors and the respective governments.


Politicians and regulators in both countries have announced aggressive expansion plans in recent months, targeting fintech and asset management sectors with friendly regulatory alterations as well as a series of education and cultural initiatives.


Although the prospect of a no-deal Brexit remains a frightening one for UK politicians and voters alike, the financial sector appears to be well-positioned to mitigate any potential downsides, using the fierce competition between competing countries to win tax benefits and other incentives from while still retaining a foothold in the British market. Conversely, governments around the world are leveraging Britain’s chaos to their advantage, bolstering their economies with a new and potentially permanent influx of jobs and tax dollars.  While Brexit itself may be just a few short months away, it will take years before its effects are fully apparent.  In spite of the chaos, London currently remains atop the European financial sector and has promised to do ‘whatever it takes’ to retain its place there. And as the recent history of Brexit developments has demonstrated, nothing is ever entirely certain.

Featured photo provided by Shutterstock/Zoltan Gabor

First photo provided by FT

Second photo provided by Bloomberg

Third photo provided by FT

Fourth photo provided by JapanGov

Fifth photo provided by JapanGov

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