Will the IFSC be the new ‘London Lite’ for jobs?
ACITY of London financial adviser said to me just after the Brexit vote that the jig was up when it came to London’s future as a global financial hub. Referring to Dublin, he said lots of firms would look across the sea and opt for “London Lite”. In the centenary year of 1916 and all that, it was an unfortunate choice of phrase — but I know what he meant.
This investment banker believed lots of London firms would move jobs to an English-speaking city just 50 minutes away by plane.
His view was supported this week. A survey of 2,000 investment professionals around the world found that many believe Dublin could be a big winner from the exit of financial services jobs out of London.
But before they all start congratulating themselves down in the IFSC, a closer look at the survey suggests it is far from being a done deal.
Every time Dublin is mentioned as a possible winner when it comes to an exodus of London jobs, Frankfurt, Paris and Luxembourg are also listed.
In this CFA Institute survey, 62.1pc of respondents believed Dublin will benefit. But 68.8pc believed Frankfurt would benefit, and the figures for Paris and Luxembourg were 54pc and 44.6pc. I would say that is rather close.
The IFSC has been a tremendous success story and its companies employ over 35,000 people. However, it has tended to do better in attracting jobs in fund administration rather than fund management.
Fund administration is all of the back office stuff involved in global financial investment. Fund management involves key executives, who are higher paid and carry a lot more clout. They decide where the money is invested and how.
Dublin will definitely benefit and London will definitely lose out. But it isn’t at all clear to what extent. In this survey, four out of 10 respondents said it is less likely than likely, that a fragmentation of the City of London will occur at all. That is still quite a high number.
And almost half of respondents said they thought Brexit would be the frontrunner of further withdrawals from the EU. Further breakup of the EU or the Eurozone could be very bad news for Ireland and its financial services sector, yet nearly half of these survey respondents believe that is on the cards.
Reports this weekend suggest that senior figures in the City of London believe a uniform deal on EU financial passporting for the UK is not achievable. This is the facility which allows London financial services companies to conduct euro transactions seamlessly. The alternative would be a series of messy complex deals covering different parts of the financial services sector.
It would take years to negotiate and it will heighten uncertainty when it comes to making decisions about future investments and jobs.
The good news for Dublin here is that it supports the likelihood of a jobs exodus out of London. But Frankfurt, Paris and Luxembourg are already gearing up to win a sizeable chunk of that business.
IDA Ireland has been quick off the mark too — but all it can do is market Ireland. High-flying financial services executives want to live in cities with nice houses, lots to do, and a bit of culture. They also want it to sound good when they tell their peers where they are moving.
There is only so much IDA Ireland can do about our international image. But these executives also want to know about the price of property, how much income tax will they pay, traffic, public transport and health care.
If you want key executives and decision makers to come locate in Dublin, then lots of things have to be in place.
The Francois Hollande-led socialist government in France has already promised to make its tax regime for expatriates the most favourable in Europe. Slashing tax rates for the higher paid will not play well in Ireland. Doing it exclusively for foreign banker executives would be even more unpopular. But that is where the action may well be.
Very little has been said about the regulatory environment in these cities. After the debacle of the banking crisis, there is a general view that we now have a very robust and suitably intrusive Central Bank regime.
That is not necessarily what these financial institutions want. There are numerous grey areas in terms of how heavyhanded regulators need to be in financial services and our own Central Bank will be adamant about maintaining a very firm stance on how it goes about its business. And so it should.
But big finance houses will scrutinise every aspect of the regulatory approach and tone in each city before making big decisions.
Cairn Homes founder executives are ‘quids in’
THREE executives at house builder Cairn Homes are most definitely “quids in” this week after 15 million special founder shares were transferred into ordinary shares at the company.
When Cairn Homes floated on the London stock market last year, the three founder executives, Michael Stanley, Kevin Stanley and Alan McIntosh, paid €10m in return for around 24 million shares between them.
However, other founder shares were set aside for them which would translate into ordinary stock in the company if the share price traded 12.5pc above float price for 15 or more consecutive business days during a designated test period.
This was achieved back in March and the value at which the shares would be awarded was only determined in recent weeks.
The founder shares at today’s 98c share price are worth €14.7m, although they cannot all be sold by the executives for two years. And there could be more to come over the next six years if total shareholder returns each year amount to more than 12.5pc. This is separate to other possible share awards under its management incentive scheme.
The starting point for next year’s targeted 12.5pc share price gain for the award of more founder shares has been set at €1.18. This is tough enough with the stock currently around 98c.
The future pay-out from founder shares could be enormous given that the three are entitled to 20pc of the total shareholder return over the seven years after flotation once the performance conditions are met.
The company has moved quickly and assembled good assets. It has also acquired a portfolio of former Ulster Bank loans. Shareholders will have to wait though because, as we know, house building takes time.
Meanwhile, the three executives are sitting on stock worth €38.7m from a €10m cash investment, less than 18 months after its IPO. Not bad at all.
Michael O’Leary needs to talk to Frau Merkel
RYANAIR’S Michael O’Leary seems to have won the argument about the economic cost/ benefit of airline travel taxes, but just not in Berlin. The Irish tourism sector hasn’t looked back since he convinced the Government here to abolish ours.
And he seems to have convinced Matteo Renzi’s Italian government to do the same. This U-turn has prompted a massive investment by Ryanair involving 2,500 new jobs in Italy, the location of 10 new aircraft and the introduction of 44 new routes.
Ryanair has wiped the floor with Italian airlines like Alitalia in recent years as the Italians have fallen in love with low-cost carriers. Ryanair is targeting a 37pc market share in Italy with this move.
An even bigger prize is in O’Leary’s sights in Germany where market share for Ryanair had been around 5pc. Ryanair is targeting a 15pc to 20pc market share and, according to O’Leary earlier in the summer, it could hit 10pc this year.
O’Leary believes Ryanair is well positioned to become the No 2 airline in Germany after Lufthansa.
But the Germans still have a sizeable air travel tax which is holding back growth. He hasn’t convinced Frau Merkel yet.