London hasn’t fallen

KEVIN LIBIN

When accounting giant KPMG announced last week that it wanted to sell its office tower in London’s Canary Wharf, it sure looked like another sign that financial companies are storming Britain’s exits in the wake of Brexit. Except, like all the other signs of the U.K.’s supposedly unfolding comeuppance for daring to quit the EU, the KPMG sale reveals the opposite.

Really, prices for London office buildings have reached scorching levels, and KPMG is planning to stay put at 15 Canada Square in a sale- and- leaseback deal that would see it pocket the 400- million pounds the building is selling for — a 250- per- cent gain over what KPMG paid 10 years ago, and still more than double, accounting for the depressed pound.

Global property investors evidently missed the news that London’s 300-year reign as a dominant global banking centre has been terminated. Because, with the Brexit decision potentially ending the“passport” system that allows U. K. banks to do business anywhere in the EU free of regulatory duplication, jobs are fleeing to Dublin, Frankfurt and Paris by the … hundreds.

If that doesn’t sound like quite the mortal blow, it isn’t. About one million people work in London’s financial sector. Another million work in sectors that support them: accountants like KPMG, law firms, and the rest. But reporters have heralded every minor human- resource twitch in the City of London since last summer’s “Leave” victory, remembering dark warnings that Brexit would sink London’s banking sector.

Ireland cooked up just the dish reporters were looking for, in June, when it reported dozens of inquiries from firms looking for space in Dublin, which retains passport access. The story spread quickly that Ireland was besting Frankfurt, Luxembourg and Paris in feasting on Britain’s squandered spoils, despite awfully meagre plunder. “More than a dozen London- based banks and finance houses” including “one American bank” had committed to putting down stakes in Dublin, reported London’s Guardian and the Irish Times, “with each firm looking at offices ranging in size from 10 to 500 staff.” A Bloomberg columnist just months ago predicted that “the loss of passporting rights would be devastating to the City of London.” But averaging out Ireland’s vague figures would mean 3,000 or so jobs all told. More people work at KPMG’s London building alone.

And the other weekend, the Financial Post front- page story, “Heading for the Brexit,” tied those modest Dublin numbers into reports from Germany that “The Deutsche Bundesbank is in talks with 20 major banks that are eyeing Frankfurt as their new EU hub.” An “EU hub” is evidently a snazzier- sounding name for a branch office, like those in Dublin, consisting of 10 to 500 staff.

Maybe waves of refugees are still to come, but even the most determined scrounging finds no evidence of banks seriously altering their London footprint post- Brexit. HSBC, UBS, Goldman Sachs and Morgan Stanley have each mused about shifting maybe 1,000 positions, give or take, into EU territory. Barclays is putting 150 folks in Dublin. On the other hand, Deutsche Bank just signed a 25- year deal for a brand- new London headquarters. Garth Ritchie, the bank’s U. K. head, said the deal“underlines the bank’s commitment to the City of London and the importance it attach es to being an employer of choice in the capital .”

Ritchie’s reference to human capital is why he’s running a bank, and those predicting a mass financial exodus aren’t. European banks prize their access to London’ s incomparably deep capital pools every bit as much as U. K. banks enjoy living without redundant regulations. But even the loss of all passporting, if it occurs, would stick banks with an added cost of between three and eight per cent, according to the Boston Consulting Group. The single- digit increase would change almost nothing in the calculation that draws banks to London, where salaries and rents are already uncommonly high.

The European Parliament acknowledged in its own briefing in December “The place of London as a major financial centre largely predates the single market and relies on a dynamic business environment, the predictability of the British legal system, the worldwide use of English as language for business, and the attractiveness of a cosmopolitan city.” Turns out London is one of those deeply rooted commercial “superclusters” that our own government keeps trying — and failing — to create here. As Ottawa can sadly attest, a few policy adjustments don’t make or break those. After all, if the added costs of regulatory hassles were enough to cripple a global banking centre, surely Dodd- Frank would have decimated Wall Street by now; all they really do is give bigger banks a better edge over smaller ones.

London’s municipal government has commissioned reports in recent years assessing its competitive position as a global financial centre. It found that what appealed most, by far, to banking decision- makers was the availability of skilled personnel ( as Deutsche Bank’s Ritchie alluded to) and an accommodating regulatory environment. On those two most- vital considerations, not surprisingly, Paris and Frankfurt don’t rank even close. Executives also ranked highly London’s access to international customers, its banking infrastructure — unmatched anywhere except New York — and a predictable and fair application of the rule of law. The extra productivity that comes from operating in London’s deep pool of human and venture capital makes banking more efficient than other regional financial centres. Morgan Stanley data find costs at German banks are 2,400 basis points higher, and at French banks, 1,500 basis points higher.

As importantly, London’s bankers really, really like London, with its swinging nightlife, posh private schools for the kids and unusually high tolerance for capitalism. As one senior banker recently summed it up to the Evening Standard, “Paris appeals, but what about the labour laws?” he said “And if we take advantage of the tax-free deals that are on offer, they’ll be burning piles of tyres in La Défense.” If you were a London banker, you’d want to stay put, too.