The cities vy­ing to re­place Lon­don as Europe’s fi­nan­cial cap­i­tal

Bloomberg Businessweek (Asia) - - CONTENTS - −Am­bereen Choud­hury

Paris, Dublin, and Frank­furt know fi­nance and are stay­ing in the EU. The Dutch have “his­tor­i­cally deep ties to cap­i­tal mar­kets”

Thou­sands of jobs at Lon­don’s largest fi­nan­cial in­sti­tu­tions are at risk of leav­ing the coun­try now that the U.K. has voted to exit the Euro­pean Union. Plenty of Euro­pean cities are vy­ing for the chance to build the next City, which would be a fi­nan­cial cen­ter for Europe and the world.

Among the con­tenders for the jobs Lon­don may lose: Paris is al­ready a ma­jor hub for Lon­don-based

HSBC, Europe’s big­gest bank. Frank­furt is home to the con­ti­nent’s sec­ond-largest fi­nan­cial cen­ter. Dublin can of­fer soon-to-be-ex­iled bankers an English-speak­ing lo­cale and a sim­i­lar le­gal sys­tem. Amsterdam and Lux­em­bourg, two more ri­vals to Lon­don, are just a short flight away.

So­ciété Générale Chief Ex­ec­u­tive Of­fi­cer Frédéric Oudea has said Brexit may pro­vide “re­newed op­por­tu­ni­ties” for fi­nan­cial ac­tiv­i­ties in Paris, which re­tains the head of­fices of France’s big­gest lenders but whose im­por­tance as a bank­ing hub has waned since its hey­day decades ago.

HSBC CEO Stuart Gul­liver said in Fe­bru­ary that his com­pany has about 1,000 in­vest­ment bankers work­ing on fi­nan­cial prod­ucts gov­erned by EU rules. With Bri­tain soon to be out of the club­house, those bankers prob­a­bly need to move to Paris, where HSBC ac­quired the for­mer CCF bank in

“There is no doubt that some City jobs may be lost, but plans for a mass ex­o­dus are wide of the mark”

2000. The mi­nuses for Paris: high taxes on the wealthy and strict la­bor laws on hir­ing and fir­ing, in­clud­ing the in­fa­mous 35-hour limit on the work­week. The French Bank­ing Fed­er­a­tion has asked the govern­ment for “a strong sig­nal on tax” to make Paris more at­trac­tive.

Jörg Ro­choll, pres­i­dent of the ESMT Ber­lin busi­ness school, touts Frank­furt, which “has es­sen­tial lo­ca­tion ad­van­tages that other Euro­pean sites don’t have.” Ger­many’s fi­nan­cial cap­i­tal has more than a mil­lion square feet of va­cant of­fices, roughly the same floor space as the One Canada Square tower in Lon­don’s Ca­nary Wharf. It also has the stock ex­change, the Eurex deriva­tives hub, and the Euro­pean Cen­tral Bank. Frank­furt’s fi­nan­cial su­per­power is Deutsche Bank, whose chief, John Cryan, pre­dicted that Brexit would mean trad­ing ac­tiv­i­ties would leave the U.K., pos­si­bly mov­ing to Ger­many.

Cryan re­cently told in­vestors that it would be “coun­ter­in­tu­itive” to trade euro zone se­cu­ri­ties such as Ital­ian govern­ment bonds out of Lon­don if Bri­tain was no longer part of the EU. Deutsche Bank em­ploys about 9,000 peo­ple in Lon­don. Hu­ber­tus Väth, the man­ag­ing di­rec­tor of Frank­furt Main Fi­nance, which pro­motes the city, says, “There’s the po­ten­tial for up to 10,000 po­si­tions to be re­lo­cated to Frank­furt over a five-year time frame.”

Ger­many’s strict em­ploy­ment laws and high taxes, how­ever, are de­ter­rents. There’s also Frank­furt’s rep­u­ta­tion for a staid culture and lit­tle night life. Many ex­pats pre­fer Ber­lin or Mu­nich.

Dublin is al­ready home to back-of­fice and ser­vic­ing di­vi­sions for in­ter­na­tional banks, and its govern­ment has ag­gres­sively courted com­pa­nies to re­lo­cate for years. A 12.5 per­cent cor­po­rate tax rate helps Ire­land’s cause. The for­eign in­vest­ment agency IDA Ire­land has pitched to U.K. and in­ter­na­tional lenders, in­clud­ing Stan­dard Char­tered, the idea of re­lo­cat­ing hun­dreds of traders and sup­port staff in the event of Brexit, peo­ple familiar with the mat­ter said in May. Brexit could push about €6 bil­lion ($6.7 bil­lion) of in­vest­ment into Ire­land, the na­tion’s debt of­fice says. (The debt of­fice is­sues Ir­ish sov­er­eign bonds.)

Credit Suisse Group said in De­cem­ber it would make Dublin its hub for ser­vic­ing hedge funds in Europe. Mor­gan Stan­ley Pres­i­dent Colm Kelle­her, who’s Ir­ish, has said his com­pany may es­tab­lish Europe head­quar­ters in Dublin or Frank­furt if Brexit oc­curred. Dublin’s down­sides are a rel­a­tive lack of of­fice space and high per­sonal tax rates.

Amsterdam was home to the world’s first cen­tral bank and the first joint-stock com­pany. It’s the head­quar­ters for banks ING and ABN Amro and home to some of the world’s big­gest pen­sion funds. “The Dutch have al­ways had a strong An­glo-Saxon as well as in­ter­na­tional busi­ness ori­en­ta­tion,” says Har­ald Benink, a bank­ing and fi­nance pro­fes­sor at Til­burg Univer­sity. “If lenders say, ‘We’re wor­ried about our ac­cess to the Euro­pean mar­ket,’ then Amsterdam is the per­fect place for them to re­lo­cate to, given the his­tor­i­cally deep ties to cap­i­tal mar­kets.” There is some lin­ger­ing hos­til­ity to­ward bankers af­ter the trauma of the govern­ment bailout of ABN Amro dur­ing the fi­nan­cial cri­sis. Pop­u­lar anger forced of­fi­cials to im­pose the tough­est caps on bankers’ pay in the EU: Bonuses can’t be more than 20 per­cent of salaries.

With Scot­tish First Min­is­ter Ni­cola Sturgeon call­ing a sec­ond in­de­pen­dence ref­er­en­dum “very much on the ta­ble,” Lon­don’s banks may not have to look over­seas for an EU mem­ber to host them. Mark Garnier, a Con­ser­va­tive mem­ber of the U.K. Par­lia­ment’s Trea­sury Com­mit­tee, says Ed­in­burgh—like Dublin—al­ready has “the be­gin­nings of a fi­nan­cial-ser­vices hub” and ben­e­fits from the use of English and the con­ti­nu­ity in the le­gal sys­tem and reg­u­la­tions.

City of­fi­cials say they’re not pan­ick­ing. Mark Boleat, chair­man of the pol­icy com­mit­tee at the City of Lon­don Corp., says, “There is no doubt that some City jobs may be lost, but plans for a mass ex­o­dus are wide of the mark. Lon­don can still of­fer a huge pool of tal­ented staff, ex­cel­lent in­fras­truc­ture, and sta­ble rule of law.”

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