Whatever Brexit deal we end up with, the City will carry on regardless

Will London lose 75,000 jobs in the financial services sector if we leave the EU without a new trade deal? The Bank of England seems to think so – it released a report to that effect earlier this week – and most commentators are taking their numbers seriously. They shouldn’t.

They also shouldn’t take too seriously any of the other estimates about job losses that might come London’s way: these range from 30,000 to 230,000, depending on how upset the think-tank or consultant in question is about the idea that the UK really is going to leave the EU quite soon.

That’s partly because the odds of us leaving without new trading arrangements in place are really very small (things that are in no one’s interest and everyone knows to be in no one’s interest don’t happen that often). But it is also because these kinds of numbers are always wrong.

The Bank of England numbers may be wildly wrong on the upside; they may be wildly wrong on the downside. But if past experience is anything to go by, they are definitely wrong.

My guess is that even if we do leave the EU with no deal of any kind, 75,000 is too high a number to place at the door of Brexit (there are other things that could cause it of course).

Note that the banks are already proving to be remarkably unreliable in their own forecasts (on which the BoE’s are based): as Capital Economics point out, both JP Morgan and UBS have cut their forecast headcount loss by three-quarters, from 4,000 and 1,000 just a few months ago, to 1,000 and 250 respectively. HSBC has also cut its estimate to below 1,000.

Moving people to other European cities is turning out to look “costly and cumbersome” as well as largely unnecessary (Barclay’s chief Jess Staley says Brexit is no more complicated than setting up the same kind of holding company in the EU next year as the bank did in the US in 2016). Some banks have recently made new commitments to London: “both Deutsche Bank, and Wells Fargo have leased or purchased office space over the last year.”

The FT is sceptical on the numbers, too. They emanate from a 2016 report by Oliver Wyman consultants, says Lex, a “trade body as queasy about Brexit and its effects as the BoE”. Oliver Wyman makes the mistake of thinking that the “City’s dense interconnections make it vulnerable.” Instead, they make it robust: “clusters above a certain size are very flexible” the paper quotes Cardiff University Economics Professor James Foreman Peck as saying.

There will be endless examples of mild hysterics panicking about Brexit and City jobs for some time to come (I spent ten minutes on BBC Radio Scotland earlier this week trying to calm one of them down) but until we get further into the negotiation process it will be hard to see what is and what is not worth worrying about. In the meantime I suspect, as does Lex, that the City will “soldier on” regardless.

  • quark

    I wonder if someone could please explain to me, why it is necessary to move City jobs to the continent. As far as I understand it – and I may be wrong – so long as our regulatory system is as good as the EU’s there is no problem. Banks and other financial services are already preparing customers for MIFD and as long as we have the same regulations, I cannot see a problem. Surely this is non negotiable, but a fact that cannot lock us out of EU financial activity when we leave. Can someone therefore clarify why City jobs need to be moved. thank you.

    • Mark Bishop

      What you’re describing is known as the ‘equivalence’ rule, which may allow UK financial services to be sold into EU nations once we’ve left. There’s no guarantee it can be achieved, but the probability is very high.

      There are, however, some risks. The EU may point to the many banking scandals of recent years and argue that our regulators, principally the FCA, are not in fact equivalent because the rules are not properly applied. And we would lose a say in how the rules evolve but would have to adopt whatever policies the EU adopts. There’s a risk, albeit small, that the Commission might introduce regulations that would disproportionately impact the City, to the benefit of its European competitors.

      On the upside, the first of the above risks may be a huge boon for UK consumers and SMEs, since it is likely to result in the banks for once lobbying for the FCA to become effective, rather than captured, because an effective regulator may be less painful for the City than being locked out of trading on the Continent.

      • Andrew Crow

        If you are relying on the FCA to do the right thing you shouldn’t hold your breath. Keep an overnight bag packed just in case.

        • Mark Bishop

          Agreed. I’ve had extensive dealings with that organisation. On a good day, it’s merely incompetent, and lacking in urgency. On a bad one, in my view it’s positively criminal, protecting senior figures in large firms, especially the banks, from the consequences of their own criminality in the hopes of lucrative ‘revolving door’ appointments for themselves in the future.

          My point was simply that if the City has to rely on ‘equivalence’ of regulatory standards to trade within the EU in the future, it may actually put pressure on the FCA to become competent and effective, since anything less could be used to justify its exclusion from the single market on the basis that an equivalent regulatory environment would not exist. And if the City says ‘jump’ the FCA traditionally asks ‘how high?’

          • Andrew Crow

            The FCA will cede its power and privilege when it is forced to and not before.

            Idle and ignorant complacency is not easily shifted.

            • Mark Bishop

              Well put. By some margin the least capable and most corrupt organisation I’ve dealt with in the UK.

  • Chris

    I work for a large international bank in east Asia, and we have advanced contingency plans with a low figure and a high figure of how many jobs we will move from the UK depending on the ineptitude of the negotiators. It would be remiss to our shareholders if we didn’t. But, we are not in the business of spreading any news as to what those figures are. Nor would HSBC, Goldman etc. To blithely dismiss a considered figure such as this as hysterics is symptomatic of the sleepwalking approach that has accompanied most Brexiteer irrational exhuberance about “leaving Europe.” (Really, going where exactly, the Falklands?) There will be lots of gloating if they are proven correct or even a costly fudge, but one can safely guarantee that they will fingerpoint everyone else apart from themselves (the dastardly French, perfidious Germans, la la) if it all goes pearshape.

    • quark

      But why is your bank making contingency plans when with mifid regulations it does not, in theory make any difference to the situation they are now in?

      • Andrew Crow

        Probably because they aren’t as green as they are cabbage looking ?

  • John Carins

    Time is being wasted and the opportunities of Brexit are seeping away. We should just walk away and we will all “soldier on” and at least enjoy the immediate and long term advantages leaving the EU will bring.The EU is no big deal and if we were to walk away I suspect that the 27 will soon be knocking at our door for a trade deal. The politicians just need to grow some backbone.

  • Jim8888

    I’m of the view – which Merryn gave me – that absolutely nothing much will happen post Brexit (and aren’t we already quite “post Brexit” anyway?) The price of a loaf on the shelves will stay the same, the City will continue to bathe banker’s fevered brows with boatloads of cash and business will roll on regardless. Immigration will continue, Britain will remain one of the most tolerant countries in the world and we’ll all moan about how awful it all is to our graves. Amen to that.


    I think Moneyweek and its readers are mostly pro-Brexit. However we also need to be realistic.
    The key for the City is the capacity to “passport” activities into the EU. If this is lost (ie not negotiated as part of the Brexit arrangements) then the City will be deeply impacted as all Banks will need to transfer activities onto Europe mainland.
    On top of this, it is likely that in all scenarios, all European global/official institutions will leave the UK , the European Banks will have political pressure to repatriate large amount of staff (it already started In France, Italy and Spain). Today London is also the centre for euro financial transactions and this hub is likely to move to Germany/France. All this represents thousands of jobs. No need to argue about this.
    You will just see it in the coming months if you do not believe it.

    Everybody is saying that UK is not impacted by Brexit but Brexit has not even started.
    Financial Transactions (Mergers and acquisitions) are already down, this is already impacting the City (Investment Banks, law firms, consultants). The city carries on, yes maybe, but the moral is at the lowest. All indicators are red (less activity, less volumes, less clients, lower margins). It is worse than 2008 because it is going to be bleeding little by little.

    Even today, I find London quiet. I see people leaving. I see restaurants with less people. I see houses sold in my street 40% cheaper than 3 years ago. Plenty of houses for rent which are empty (Clapham, Fulham, Battersea). It does not look good.
    These areras were full of European bankers living in London with their family and they are preparing to leave next Summer. But who can afford these housing prices except City workers ?
    Who is going to pay the high taxes that these people were paying ?
    All this wealth in South-West London was fueling into the rest of the economy (estate agents, builders, schools, restaurants, shops). The party is over !

    Maybe Brexit is OK for the country side (which voted for Brexit) but it is a disaster for London and UK needs London to fuel its global economy.

    This is just the view of a stupid European Banker who has lived in London for 10 years but who was recently asked to move back to his home country by his employer together with 500 of his colleagues ……All European Banks have moving plans which will start being implemented in 2018.

    • quark

      I think this just about sums up the situation in London. My only point being that if equivalence is not agreed for the UK, why should every other democratic country and their banks be given that “privilege” but not us? In my opinion this would-be an act of discrimination and revenge, with all sorts of implications for our future relationship with the EU, none of them good. Equivalence should not be in any doubt for the UK. It could be agreed within an hour. No agreement would be an act of blatant hostility.

      • Andrew Crow

        And your point is?

    • Warun Boofit

      Dont be so hard on yourself, you surely cannot be so stupid if you are a banker, hopefully you will enjoy moveing back home and will still have a job ? I am not a banker but I worked for a global company that once exported to Europe and I dont think I am stupid. Companies that were once national become global, they set up up local companies in every country they previously exported to, exports continue under the tax evasive umberella of transfer pricing and they rake in more profit than ever. I doubt very much that there will be more than a few thousand job losses in the banking sector but you are right that from my grim northern brexiteers abode I couldnt care less as things are looking up.

    • Mark Bishop

      I suspect the outturn will be more positive than you suggest. But if you’re right, great! The UK is far too dependent on financial services, especially banking, and on the professional services firms that live off that industry. Huge capital flows generated by investment banking keep Sterling higher than it would otherwise be, favouring exports. Geographic and hence social mobility is reduced by crazy house prices in London. Talented people are sucked into finance when they could be doing productive work and the banks extract rents from households and small businesses, often close to or beyond the law. And, as we learned in 2008, society provides an implicit guarantee for the industry’s risk taking, which in turn guarantees that risks will always be taken.

      The classic defence of the City is, ‘Yes, but look at the taxes they pay!’ The same could be said of legalising many forms of anti-social activity in order to tax them; the taxes extracted may mitigate the harm, but they don’t reverse it. And in the banks’ case, the argument is weakened by the fact that so many of them are non-domiciled and, even when British, a culture of what might politely be called tax mitigation is so deeply ingrained, limiting what’s collected.

      It may be that Brexit results in a gradual, long-run diminution in the scale of the City. Personally I doubt it: bankers’ wives like London, and they and their husbands generally get what they want. But if there is a decline, we should welcome the diversification and risk reduction this will bring to the British economy.

    • Andrew Crow

      “I think Moneyweek and its readers are mostly pro-Brexit.”

      You think? Given that the outfall of Brexit is entirely unpredictable ‘Moneyweek and its readers’ must be congenital optimists.

      Only an idiot plans on the basis of uncertainty. Risk is calculable, uncertainty ain’t.

  • Peter

    I really don’t care if we lose these jobs – I was hoping that quite a few more would go.

    Does the tax revenue of this specious ‘industry’ really outweigh the damage done by the financial crash?! Doubt it.

    • Andrew Crow

      I share those doubts. particularly given the tax regime is lax beyond utility.

  • yarodur

    What about car industry or biotech? Sorry, perhaps only financial jobs matter

  • LG

    Whatever happens to the Medicis, Florence will always be the home of European financial services. Oh, wait….

  • LG

    “things that are in no one’s interest and everyone knows to be in no one’s interest don’t happen that often”

    The irony of that statement seems to have flown over your head unnoticed Merryn.