Banks’ post-Brexit relocation strategies are being slowed by differing priorities across teams, according to a London-based in-house at a US bank.
Immediately after Theresa May’s January 17 speech, HSBC became the first major bank to give detail on its plans post-Brexit, saying it will relocate 20% of its London banking operations to Paris. UBS said the same number of its UK employees would also be affected, while Jamie Dimon, chief executive of JPMorgan Chase said that around 4000 of the bank’s 16,000 could be hit.
But institutions appear to differ wildly on the extent of their preparations for moving. While most US banks have reportedly ensured they have all the required legal structures, capital, licences, systems and regulatory approvals to operate in the EU after a hard Brexit, much will depend on the nature of the new trading arrangements between the EU and UK.
According to the in-house who sits on his bank's Brexit working group, very little work has been done on a detailed level. “Until we know what’s going to happen it could be a total waste of time,” he said.
The key shortlist is now Dublin, Paris and Frankfurt. Very few banks appear to have made firm decisions but many are running feasibility studies on each of them.
The source explained that while one business line in his bank is calling for Frankfurt due to its proximity to their clients, the syndicate desk, for instance, favours Paris. Finally, senior management is lobbying internally for Dublin because they know the Irish regulators well. “The whole process is riddled with internal self-interest, so is very difficult to see how it will shake out,” he said.
The regulators and exchanges in the jurisdictions vying for business are keenly aware of the indecision and are reportedly inundating the banks with brochures and in many cases offering special terms.
Decisions will need to be made soon though, for those still unsure. After the March 31 article 50 announcement banks are expected to begin the scramble for locations, and with real estate a finite commodity in all cities, the source believes the first-mover advantage will benefit those brave enough.
“I imagine people will just have to plump for a jurisdiction and start to set up their equivalent offices over there. It’s a pain in the arse but you have to recreate your entire London office in continental Europe,” he said.
Dealing with difference
And with the spectre of a EU-compliant syndicate office looming large for UK-headquartered banks, the example of JP Morgan Cazenove appears to be a sensible one to follow, at least from a documentation perspective.
In 2004 Cazenove, the blue-blooded independent UK stockbroker joined forced with JP Morgan, combining Cazenove’s corporate broking business with JP Morgan’s UK investment banking functions.
For years JP Morgan Cazenove operated as separate legal entities, which may prove an interesting model to follow. Under the Cazenove arrangement every underwriting agreement or prospectus involving the institution featured a legal agreement that stated ‘JP Morgan’ and ‘Cazenove’ as two separate entities, and then, ‘acting together: JPMC’.
Each bank would sign their own names and split their fees, which would then be funnelled back centrally. “I’d be surprised if we didn’t take that approach,” said one ECM in-house in London.
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