Financial sector doubting UK commitment since Brexit
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ONE AFTERNOON in mid-january, Prime Minister Theresa May walked into a meeting room in the Swiss resort of Davos to face Wall Street’s most powerful bankers. May had delivered her vision two days earlier for pulling Britain out of the EU’S single market. The Wall Street banks, fearing Britain was headed for trouble, wanted to hear more about her strategy.
At stake was London’s future as a global financial centre. Among those present were Goldman Sachs chief executive Lloyd Blankfein, JP Morgan Chase chief executive Jamie Dimon, and Morgan Stanley chief executive James Gorman Blankfein, who was the most direct during the talks, said two bankers and a government official with knowledge of the meeting.
“Lloyd asked where does the financial services industry stand in her list of priorities,” said a senior banking executive briefed on the discussion by his boss. “We contribute a double-digit percentage to Britain’s GDP. We’re the biggest taxpayer in the country.”
May gave a reply about the importance of financial services but declined to answer the question directly, the sources said. Some of the bankers left questioning her commitment.
May and the banks declined to comment on the meeting.
Over the past two decades, Goldman, like many of the other 250 foreign-owned banks in Britain, has consolidated its European operations in London to take advantage of the EU’S $16.5 trillion-a-year (R204.6 trillion) single market.
They are set to lose this wide-open access to a market of 500 million people after May signalled her main priority is to restrict immigration, which can be achieved only by leaving the trading bloc.
Senior bankers expected special treatment after Britain voted to leave the EU. They expected ministers to champion their cause, above other industries, to retain unrestricted access to the single market for financial services.
It isn’t working out that way. Meetings between bankers and government ministers have also ended badly.
Bankers say May’s ministers don’t understand the industry and what is at stake, and don’t want to hear negative news about Brexit.
“We have entered a period of severe danger,” said a Wall Street executive who runs the European operations of a global investment bank. “Parts of the government are being way too complacent.”
May’s office said the government didn’t “recognise this version of events” and the government was engaging with the financial services industry.
Politicians say the bankers are exaggerating the threat. Some rebalancing of the economy away from financial services, which accounts for about 12% of Britain’s economic output, will be good in the long run, they say.
“It is all just lobbying. They make a brouhaha,” said Peter Lilley, a pro-brexit Conservative politician and former financier, who sits on the parliamentary committee examining Britain’s exit from the EU. “They always exaggerate.”
The rift is in marked contrast to what’s happening in the US. The populist backlash that made Donald Trump president has brought at least four former Goldman Sachs executives into senior positions in the new administration. But in Britain, the nationalist drive that produced Brexit delivered a prime minister determined not to be in thrall to bankers.
The result is that banks are preparing to move large numbers of staff from London, and Germany and France are trying to lure jobs to their financial capitals.
Some bankers believe the big winner from Brexit will be New York because some business carried out in London would revert to US headquarters.
HSBC, UBS and Morgan Stanley have decided to move about 1 000 staff each from London in the next two years, according to sources familiar with their plans.
Last week Goldman Sachs said it would begin moving hundreds of people out of London as part of contingency plans for Britain leaving the EU.
Since prime minister Margaret Thatcher’s “Big Bang” financial deregulation triggered a massive expansion of the industry 31 years ago, bankers have relied on being a powerhouse of Britain’s economy to find a receptive ear in the government.
But in the aftermath of the vote to leave the EU, the sector is grappling with a new reality. Last year’s vote triggered a change in leadership and tone at the heart of Britain’s government. May pledged an
Goldman and 250 other foreign-owned banks worried about losing access to a market of about 500 million people
industrial revival and to build an economy that works for everyone, not just the elite.
Reuters spoke to more than 40 senior bankers from big British and international banks, politicians, government officials and lobbyists to piece together how the relationship between the pillars of Britain’s establishment became strained.
They say there are conflicting opinions about what the long-term results of Brexit will be for the world’s fifth largest economy and whether finance should remain the biggest driver of its wealth.
The government is making two calculations, they say. The first is that bank executives are bluffing about moving jobs. The second: The EU is so dependent on London to service its debt that EU negotiators will give UK financial services a special deal to continue to operate unrestricted across the single market. EU officials counter that finance is mobile and business will move to other locations.
Britain’s finance industry contributed a record £71.4 billion in corporate and employee taxes to the government last year, according to the City of London Corporation. Finance contributes almost as much in tax as all taxpayers in Scotland and Wales combined.
Nevertheless, May’s ministers told bankers they would not get any special treatment in the Brexit negotiations.
The second most powerful executive at one of Britain’s biggest banks said he and his colleagues felt wrong-footed.
Junior finance minister Lucy Neville-rolfe has sought to calm tension, saying banks will be one of the priorities in the EU divorce talks.