Post-Brexit London: 4 EU Cities Vying to Cash in on London's Financial Services Exodus

POST-BREXIT LONDON: 4 EU CITIES VYING TO CASH IN ON LONDON’S FINANCIAL SERVICES EXODUS

December 2017

© Euromonitor International PASSPORT 2POST-BREXIT LONDON: 4 EU CITIES VYING TO CASH IN ON LONDON’S FINANCIAL SERVICES

EXODUS

Since the June 23rd referendum in 2016, whereby the UK’s population voted to leave the EU, questions

have been raised as to the extent to which this decision will impact the country’s economic, political and

social standing. With negotiations still ongoing, one of the most contentious issues regarding Brexit

revolves around London’s future as a leading European and global financial centre after the UK withdraws

from the EU.

In light of Brexit, a grave concern among financial services companies has been passporting rights; that is,

the ability to freely provide cross border financial services to clients based in EU or EEA (European

Economic Area) markets. Banks and other financial services companies have suggested that if passporting

rights are to end, certain operations in London will be transferred to other EU cities as a means to maintain

presence in the Single Market. The briefing provides presents four major EU cities best placed to take

advantage of London’s financial services exodus and potentially become the EU’s chief financial centre.

75,000 jobs in London’s financial services are

under threat from Brexit

The City of London accounts for 13% of

London’s output

Financial services accounts for 36% of the

City of London’s jobs

Brexit; City of London and the financial services industry


http://www.euromonitor.com/



EXODUS

Good business and regulatory environment

Access to markets and financial services

Developed infrastructure and communications

Supply of high quality human capital

English language proficiency

Cultural aspects and high quality of life

Key criteria to becoming a major financial centre





EXODUS

Frankfurt is a natural alternative

to London, as it is ranked

second in the EU (behind

London) for its financial centre

competitiveness, according to

the September 2017 Global

Financial Centres Index.

A number of banking giants,

such as UBS, Goldman Sachs,

Morgan Stanley, Citigroup and

Barclays, have already publicly

expressed their intent to shift

banking operations to Frankfurt.

However, bearing in mind that

the city is already home to the

European Central Bank, there

are fears that if Frankfurt is to

become the EU’s financial

stronghold, it could further

consolidate Germany’s

dominance in the bloc – an

unsettling scenario for other

states, especially France.

Pros

• Already hosts various EU regulatory bodies

• English language is widely spoken

• High quality of life

Cons

• Small city and not known for its entertainment appeal

• Quite high corporation and social security taxes

• Strict labour rules

Frankfurt: EU’s main financial services alternative to London





EXODUS

Considering Ireland’s cultural,

linguistic and legal similarities to

the UK, Dublin stands in good

stead to poach London’s

financial services jobs. The

city’s low corporation taxes have

attracted multinationals such as

Yahoo and Google, and are also

a major draw for banks and

other financial services

companies. Barclays, for

instance, has already pledged to

move 150 of its staff to Dublin,

with other major banks,

including HSBC and CitiGroup,

likely to follow suit.

However, memories of the 2008

banking crisis still linger in the

minds of the Irish regulators,

who have become less inclined

to welcome investment banks

with large trading positions in

risky assets.

Pros

• English as a first language

• Similarity to UK’s legal system

• Low corporation taxes

Cons

• Undersupply of residential housing

• Expensive city for expats

• Expensive commercial office rents

Dublin: Linguistic and cultural similarities boost Irish capital’s bid





EXODUS

In terms of size, Paris is the

only real global metropolis

rivalling London in the EU. Its

cosmopolitan flair, coupled with

its eminence as a historical and

cultural melting pot, makes it

one of the firm contenders to

snap up London’s financial

services jobs.

As a means to further Paris’

desirability, the French Prime

Minister, Édouard Philippe,

earlier in 2017 presented a

document outlining a vision of

making Paris the EU’s leading

financial centre after Brexit. The

document proposed the

introduction of various reforms,

including the abolition of a 0.3%

tax on financial trades.

HSBC and the Bank of America

have already expressed interest

in relocating to Paris.

Pros

• Large number of international schools

• Good international connectivity

• Global city and a cultural melting pot

Cons

• Resistance to accepting English as lingua franca

• High income taxes and rigid labour laws

• High accommodation costs

Paris: A global metropolis analogous to London





EXODUS

Amsterdam: Strategically located in Europe


Pros

• High number of English speakers

• Good international schools

• Culturally appealing city

Cons

• Large cap on bankers’ bonuses

• High top income tax rate

• Low office stock

Amsterdam has been more

discreet its attempt to lure away

major financial companies from

London. The city is renowned

for its rich cultural offerings and

a bustling nightlife scene. It is

well placed geographically and

benefits from excellent

connectivity to other European

cities. Despite its small size,

proportionally, Amsterdam

benefits from a large share of

the working age population.

The city is known for its strength

in fintech, clearing and high-

frequency trading. In mid-2017,

Japan’s largest bank, MUFG

expressed its intent to shift its

investment arm to Amsterdam.

However, Amsterdam’s financial

sector is quite small, and since

the 2008 financial crisis it has

declined further in size.




EXODUS

The four cities of Frankfurt, Dublin, Paris and Amsterdam are the

main contenders to take London’s financial services jobs, but this is

by no means an exhaustive list. Other cities have similarly asserted

their ambitions of welcoming financial services firms from London.

Madrid, the EU’s third largest city, has been praised for its

affordability, abundance of office space and favourable climate. The

city also benefits from competitive tax rates. Milan, well known for its

role in the fashion industry, also prides itself on being Italy’s key

business and financial centre. It possesses strong cosmopolitan and

cultural flair, boasting 15 Michelin starred restaurants. Luxembourg

has been touted as one of the dark horses to attain a share of

London’s financial services, especially in private banking. In October

2017, CitiGroup – the US’s fourth largest bank – unveiled plans to set

up an administrative base for its EU private banking clients in the tiny

state.

Eastern European cities are also in the hunt to house some middle

and back office functions. The Polish government has suggested that

25-30,000 jobs in the business services sector could be shifted from

the UK to Poland. Warsaw is expected to play a front running role in

assuming the largest portion of jobs, with Wroclaw and Krakow also

being considered. Other eastern European cities, such as Prague,

Budapest, Tallinn, Riga and Vilnius, are likewise keen to take some of

London’s lower function jobs.

Others in the mix to seize London’s financial services jobs





EXODUS

European Banking Authority moves to Paris

European Medicines Agency transferred to Amsterdam

The EU’s two main regulators, the European Banking Authority and the European Medicines Agency, will

see their operations being shifted from their current base in London after a vote by the remaining 27 EU

country representatives in November 2017. The European Banking Authority will be moved to Paris, while

the European Medicines Agency, which oversees the bloc’s healthcare industry, will be relocated to

Amsterdam, as the UK continues its path towards an EU exit.

Concern has also been raised regarding the future of London’s euro-denominated clearing business, which

is being sought by the Frankfurt Stock Exchange. The business, which deals with foreign contracts worth

USD1.2 trillion on a daily basis, plays an important role in reducing risk across the EU’s financial system.

EU agencies already moving out; could Euro clearing follow suit?





EXODUS

Moving operations to other cities is

very costly

Employees may not be willing to leave London due to familial

ties

London is at the heart of fintech innovation in

Europe

Innovative capabilities and

infrastructure are highly developed

in London

Moving operations elsewhere has its challenges too




FOR FURTHER INSIGHT PLEASE CONTACTFransua Vytautas Razvadauskas

Cities Analyst

[email protected]


EXODUS

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Post-Brexit London: 4 EU Cities Vying to Cash in on London's Financial Services Exodus