If London’s banks lose their financial services passport, Ireland may be the biggest winner if relocation decisions are based on where these banks maintain subsidiaries. This is the thinking behind a confidential internal note prepared by Deusthe bank for its July 5 board meeting.
According Deusthe, their competitors would most likely relocate their operations to Ireland, France, Germany, and Luxembourg, where they have existing subsidiaries. So, in theory, Barclays and Bank of America Merrill Lynch could shift their markets businesses to Dublin, while Goldman Sachs has subsidiaries in Paris and Frankfurt, Germany, that it could keep its access to the 27-member single market once the UK officially leaves the European Union, according to the note.
The EU financial services ‘passport’ allows European banks to operate branches in the UK that do not need to be separately capitalised from the parent company abroad. Similarly, non-EU banks can use their London subsidiary to sell services to clients across the EU. The use of this bank “passport,” which allows banks in London to access the EU single market of 28 nations (including the UK), could come to an end because of the June vote for a British exit from the EU, or Brexit.
With client access at stake, banks could rush for the exits, placing a strain on the European Central Bank, which regulates eurozone banks through its Single Supervisory Mechanism, for approvals, according to the note.There will be staff shortages as firms look for local talent. At the same time, the UK could loosen rules and lower taxes to make London a more attractive financial centre.
Aside from the speculation about where London banks may go, the bigger question is when. Bankers and investment -types don’t tend to wait for ‘rain’ they make it. This thinking suggests that with BREXIT still an open-ended proposition, the real question is: Will London’s bankers choose relative post-referendum certainty in mainland Europe over their swanky SW 1X, w8 and SW3 London post codes.