Bloomberg Businessweek (North America)
The cities vying to replace London as Europe’s financial capital
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
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.” �Ambereen Choudhury
“There is no doubt that some City jobs may be lost, but plans for a mass exodus are wide of the mark”