The fog is starting to clear on what the City thinks of Brexit
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Over the past six months, we've spoken to a lot of experts about Brexit. These include economists, retired diplomats and people from think tanks. However, we haven't spoken to many people on the ground. This was partly due to the fact that firms were reluctant to be seen to be taking sides. Many of them were unsure themselves how Brexit was going to affect their business, especially since the process of leaving the EU hasn't even formally started. However, as the vote recedes into the background and Brexit comes closer to becoming a reality, firms and trade associations have become more willing to discuss things with us.
Sam Smith is the founder and CEO of finnCap, a corporate broker specialising in helping small companies raise money through listings on the Alternative Investment Market (Aim) the "junior" market of the London Stock Exchange. As well as providing advice, finnCap also provides research and market making services for institutional investors. This means that when big banks or funds want to buy or sell a large chunk of shares, finnCap will offer to take the other side of the trade, in order to reduce the potential disruption. All this gives Smith an important perspective on how Brexit is affecting the City.
Overall, Smith is relatively sanguine about how things are going so far. She admits that the initial shock of the result "caused a short-term delay in deals getting done". However, since then, "things have recovered pretty quickly" and most businesses are now "generally keen to roll their sleeves up and get on with things". This doesn't particularly surprise her, because she believes that "entrepreneurs are very good at reacting". She also points out that most small companies don't have the luxury of postponing important decisions indefinitely.
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In fact, there are signs that business momentum is actually picking up, since the final two months of last year "have been particularly busy with a lot of companies getting on with deals". The pipeline of forthcoming deals also looks "very encouraging". There has been an increase in demand for the analytical parts of finnCap's business. Indeed, many clients want advice "on how to grow their businesses and make the most of the opportunities that arise from the sorts of major political changes that we've seen over the last six months".
Smith also thinks that the downside risk for the City of London "has been overstated". In her view, "there are plenty of options open to UK-based financial institutions wanting to conform to passporting rules". In any case, it's doubtful that Europe could replace the City overnight, since "places like Paris and Frankfurt don't have the same infrastructure, or the same volume of skilled and experienced people". She also points out that, "our time zone means we are a natural link between US and Asian markets". While it's "not impossible" that some people could be forced to move, she "doesn't see hundreds of thousands of people uprooting their families and moving to Europe any time soon".
Smith has some strong ideas about what Britain can do to ensure that the small companies that finnCap works for can make a success of Brexit. She thinks that the key thing "is to make sure that the UK is well placed to trade with the rest of the world". This will involve, "supporting entrepreneurs and people looking to start businesses". It also includes "putting in place the right skills so that we can trade internationally, rather than focusing on serving domestic markets". Smith also thinks that better infrastructure is vital as "we need faster broadband speeds if we are going to make the most of hubs like Silicon Roundabout [in East London]".
It is clear that Smith seems upbeat about the short and long-term implications of Brexit. However, she still emphasises that "politicians need to make sure that the negotiations have the sector's interests at heart". After all, "the UK financial sector brings in a huge amount of revenue to the UK exchequer". At the same times, she cautions against an over-hasty response to developments, arguing that the City "needs to understand the shape of Brexit before it can decide what it wants to say and how it can make its voice heard".
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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
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