The Brexit exodus that never was

Doom-mongers predicted a massive flight from the City, says Matthew Lynn. But it simply didn’t happen.

Frankfurt not as appealing as it first appeared

© Richard Baker. All rights reserved. No copying, screen grabbing, watermark removal, transmission and no publication without permission from the author.

Doom-mongers predicted a massive flight from the City. But it simply didn't happen.

The banks were meant to be heading to Frankfurt. The hedge funds were off to Paris. The fintech stars would decamp to Berlin, and the traders would create new bases in Brussels or Barcelona, or anywhere where they could stay within the EU's single market.

Advertisement - Article continues below

When the UK voted to leave the EU in 2016 one of the more plausible warnings, amid some fairly wild and hysterical ones, was that our massive financial services industry would take a huge hit. After all, the City had prospered over the last three decades from turning itself into the key finance centre for the whole of Europe. If British firms were no longer allowed to market themselves across the continent, they would suddenly look a lot weaker.

The Europeans make their move

Yet with Brexit now just months away, it is Europe's banks that are looking weaker than ours. Societe Generale is planning to close its $5bn proprietary trading unit. Its shares have dropped from €47 a year ago to just €27 now. Its main rival, BNP Paribas, is not looking much healthier. It is also planning to close its proprietary unit, Opera Trading Capital. Its shares are down from €68 a year ago to just €41 now.

Advertisement - Article continues below
Advertisement - Article continues below

In Germany, it is even worse. Deutsche Bank has been floundering for years now, and shows little sign that it can turn itself around. Last week, its shares went below €7 for the first time, and the price is down from €16 a year ago (and, remarkably, down from €116 before the financial crash). With a market value of a mere €16bn, it hardly counts as a major bank any more. In the last week, the German government has started dropping hints that it wants a foreign takeover of Deutsche Bank. Why? Because, shockingly, its domestic rivals are considered too weak to take it on.

Both financial centres are being hollowed out. Germany no longer has any major bank to speak of Deutsche's main rival Commerzbank doesn't look much healthier and France's national champions are struggling to stay competitive. If any major British financial institution has decided to relocate in full to Paris or Frankfurt, then they are keeping the news to themselves.

No room for complacency

Yet the important point is this. As in so many industries, the EU is fairly marginal in terms of how the financial sector operates. Membership doesn't actually make a huge difference to most businesses one way or the other.

What really counts are the skills of the workforce, the tax and regulatory regime, and the network effect of having lots of firms all clustered in the same place. And on all those counts, the City is still doing fine, and arguably growing stronger while its main European rivals are getting weaker. Lots of things might happen as a result of Brexit. But it is now clear that a mass movement of the finance industry to Germany or France won't be one of them.




Brexit begins: what do the UK and the EU want from a trade deal?

With Brexit now done, the trade talks can begin. But who wants what from a UK/EU trade deal, and how likely are they to get it?
3 Feb 2020

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Another Brexit delay – so what happens now?

Last week’s excitement over a Brexit deal getting done proved to be premature. John Stepek looks at where we are now, and what it means for your money…
21 Oct 2019

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019

Most Popular

UK Economy

What bounce back loans can tell us about how we’ll pay for all this

The government will guarantee emergency "bounce back loans" for small businesses hit by Covid-19. Inevitably, many businesses will default. And there'…
1 Jun 2020

This looks like the biggest opportunity in today’s markets

With low interest rates and constant money-printing, most assets have become expensive. But one major asset class hasn’t. John Stepek explains why com…
2 Jun 2020

These seven charts show exactly why you must own gold today

Covid-19 is accelerating many trends that were already in existence. The rising gold price is one such trend. These seven charts, says Dominic Frisby,…
3 Jun 2020