Asian banks unwilling to give up London as Brexit looms... at least for now

While there is competition between a number of European cities for the business that will have to leave London, no single front runner has emerged

PUBLISHED : Sunday, 05 February, 2017, 10:00am
UPDATED : Monday, 06 February, 2017, 8:09am

Banks from Asia will be among those most affected following Brexit, but analysts expect that they will not move large numbers of staff away from London, at least not in the short to medium term.

On Thursday, David Davis, the UK’s so-called “Brexit Minister” set out the UK government’s strategy in an official white paper, which was broadly in agreement with Prime Minister Theresa May’s speech in January.

The UK will leave the single market, though will attempt to negotiate “the greatest possible access to it” via a new free trade agreement. As such there is no guarantee that banks in the UK will be able to sell their services freely into the European Union once the UK has left the trading bloc.

“May’s speech recognised that there is also the possibility that no deal will be reached, and, for banks, that now has to be the base case scenario,” said James Coiley, a UK based partner at law firm Ashurst.

For UK and non EU banks that have, thus far, used a UK location to sell products and service clients in the EU, this means some reorganisation is required.

“Most Asian banks are in this most affected group,” said Coiley.

On a visit to Tokyo in December, UK Chancellor Philip Hammond, acknowledged that Japanese banks operating in London would have to make changes to their operations if they were not to have full access to the single market after the UK leaves the EU.

However, Keith Pogson, senior partner in EY’s financial services operations in Hong Kong said that he did not anticipate Asian banks moving large numbers of jobs from the UK to elsewhere in the EU.

“There are two main areas where the banks will have to move staff,” he says. “The first is for solicitation, that is to say servicing existing clients in the EU, particularly in areas like trade finance, and, the second is for the private banks, who need to execute and clear trades in securities such as government bonds or stocks listed on European Union stock exchanges.”

Pogson estimated that this would involve roughly 120 people across the two areas as well as some additional support staff.

“I do not expect major moves beyond this, unless London’s position as a financial services nexus comes under threat,” Pogson said.

Speaking in a press conference on Thursday, Bank of England Governor Mark Carney emphasised the difficulties of moving business from London to other European cities. Taking the example of derivatives business, he said: “Picking up people, capital, collaterals and models and moving them is very complicated and comes with huge operational risks and huge financial risks. It is not something you do overnight.”

Nonetheless, European officials are endeavouring to attract more business from British, and other non EU banks, which will no longer be able to do everything in London that they have done hitherto.

Banks that already have operations in other EU countries are looking to expand their activities in these locations. For example HSBC has said it will move 1000 jobs to Paris, where it already has a fully operating banking subsidiary.

UBS have existing operations in Frankfurt and Madrid, to which they are considering moving, according to Andrea Orcel, head of UBS Group AG’s investment bank, at Davos. Meanwhile Standard Chartered are considering moving some operations to Dublin, Bloomberg reported.

While there is competition between a number of European cities for the business that will have to leave London, no single front runner has emerged.

“Nor is all of London’s business equally attractive to all other centres. Countries with smaller national balance sheets may welcome, for example, asset management, but may be less keen on the risks associated with some banking activities,” said Coiley.

The Irish authorities, for instance, have indicated that they are primarily interested in asset management operations. They do not want to increase the size of the balance sheet of the banks operating in Dublin.

For some Chinese banks, who already have operations in mainland Europe, the pressure to move staff away from London is less urgent. ICBC, for example, said last year that it was looking to expand operations in central and eastern Europe from a base in the Polish capital Warsaw.

Nonetheless Bank of China is in “advanced talks” about moving part of its London operations to Dublin, local newspaper the Irish Independent reported last week.

Hong Kong headquartered Bank of East Asia has doubled the size of its London branch, and the branch’s general manager told the Post that the UK’s vote to leave had not had a significant impact on its operations.