Get 40% Off
🔥 This hedge fund gained 26.16% in the last month. Get their top stocks with our free stock ideas tool.See stock ideas

Wall Street’s Best-Laid Brexit Plans Thrown in Disarray by Virus

Published 06/16/2020, 04:38 AM
Updated 06/16/2020, 05:45 AM
© Reuters.  Wall Street’s Best-Laid Brexit Plans Thrown in Disarray by Virus
C
-
BAC
-
GS
-
JPM
-
CSGN
-
DBKGn
-
MS
-
PUK
-
UBSG
-

(Bloomberg) -- Giant U.S. banks still have to deliver a Brexit plan to get staff across the English Channel, before a potential second wave of Covid-19 forces Europe’s doors shut again.JPMorgan Chase (NYSE:JPM) & Co., Morgan Stanley (NYSE:MS) and Goldman Sachs Group Inc (NYSE:GS). have lost precious months during the pandemic lockdowns in moving employees to European Union financial hubs. With Brexit talks deadlocked and time running out before the year-end deadline, firms are finally reactivating long-held plans to shift staff from London -- only to find they can’t move fast enough.“Relocating staff during a second spike is a concern,” said Peter Bevan, a partner at the law firm Linklaters. “During lockdowns, a small number of people have been caught in the wrong place and regulators understand that, but if you are talking about an entire team stuck in the location regulators want them to move from, that will make for a tougher conversation.”

Foreign banks oversee almost half of all banking assets in the U.K., according to 2015 figures from the Prudential (NYSE:PUK) Regulation Authority. Yet the exodus from London to the continent has been far smaller than some expected after the Brexit vote, with firms moving about 1,000 people by last September, out of a total of 7,000 moves predicted by consultancy EY.

Representatives for JPMorgan, Morgan Stanley and Goldman declined to comment.

German financial regulator BaFin told Bloomberg that little had changed since February, when Chairman Felix Hufeld said banks had done far more than 80% of the work needed to deal with Brexit from a legal and technical standpoint. But when it comes to moving client business to their EU hubs, the banks are, on average, less than a third of the way there, he said.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

European Hubs

Some European banks have advantages over their American peers when it comes to Brexit planning. UBS Group AG (NYSE:UBS) decided to merge its U.K. entity with its EU entity that has passporting rights last year, giving the bank flexibility to move staff around the region. Now, its traders, risk and back office teams sit in Frankfurt where UBS already had a large presence in wealth management.

Credit Suisse (SIX:CSGN) Group AG joined UBS in planning for a hard Brexit from the beginning. It moved some staff to bolster the bank’s services in Spain, Germany and Luxembourg. “London will remain a key part of the bank’s strategy and footprint after the U.K.’s exit from the EU,” a spokesman said.

Deutsche Bank AG (NYSE:DB), which has said it is moving hundreds of staff to adapt to Brexit, declared client migration was “materially complete” in its earnings last September. Deutsche Bank (DE:DBKGn) continues to expect to transfer several hundred jobs from London to Frankfurt once the Brexit transition period concludes, a person familiar with the matter said.

To be sure, the U.S. banks have made progress on their longer term post-Brexit plans. Earlier this month, Goldman signed a 12-year lease in Paris’s 16th arrondissement where it operates one of its broker-dealers servicing European clients, allowing it to double its headcount in the French capital from late next year. JPMorgan bought a seven-floor office building in the historic 1st arrondissement in January with capacity for as many as 450 people -- although that was an estimate made before social distancing became the new normal.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Bank of America Corp (NYSE:BAC), which also has its Brexit hub in Paris, has gone further by committing to a fully fledged sales and trading business on the continent. It has had about 450 staff in Paris since last year and won’t need to add any more in the event of a no-deal Brexit. Citigroup Inc (NYSE:C)., which already has about 60% of its European staff outside the U.K., is creating 150-200 new roles primarily in Frankfurt as part of its Brexit response.

Some finance employees who are earmarked to work from Brexit subsidiaries in Europe are still physically in London while operating under European employment contracts as the virus interrupts their plans to move, people with knowledge of the banks’ plans said.

It’s not the first time banks have grappled with the prospect of a hard Brexit. European regulators have already said they’ll require French and German asset managers to do business through EU banking entities unless a deal is agreed. Regulators have previously put pressure on banks to move staff promptly, although some banks are now expecting a change in stance in light of the pandemic, people with knowledge of the matter said.

“We have seen a lot of dialog in recent weeks from the ECB and home regulators asking banks to push these things forward,” said Bevan.

Dormant Hubs

Many JPMorgan and Citigroup clients are still funneling business through London, rather than the banks’ EU offices, some of the people familiar said. The liquidity is still better and it’s cheaper to do business there, the people said. A Citigroup spokesman declined to comment.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Bevan at Linklaters said that while the re-papering exercise has been completed to switch EU clients onto new Europe facing entities, hundreds of asset managers have yet to review the new terms and push the button to activate trading. The scale of the outstanding work could take months to complete, he said.

Stephen Jones, the CEO of trade body UK Finance, expects more bankers to follow the thousands that have already moved from London to European hubs. “But it’s not going to happen overnight, and I hope regulators in the EU will be pragmatic about all this.”

©2020 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.