Föhrenbergkreis Finanzwirtschaft

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Businesses are preparing for the worst version of Brexit

Posted by hkarner - 5. August 2017

Date: 03-08-2017
Source: The Economist
Subject: The sucking sound

As uncertainty about Britain’s departure from the EU deepens, bosses are preparing to move elsewhere


Planning their next move

IT IS a truth universally acknowledged that business abhors uncertainty, and nothing is more uncertain than Brexit. Yet investment decisions must be made, new products developed and staff hired, even as March 2019, the date for the end of the Article 50 negotiations, looms ever closer.

Many companies, therefore, are investing heavily in contingency planning. Such is the concern that the financial-services industry has been obliged to do so by regulators. Some are now acting on those plans. Given the chaos in the government over Brexit, that involves preparing for the worst and pining for the best, including a transitional deal. In practice, this means starting to shift jobs and functions out of Britain. The sucking sound is now audible.Banks, which had to have their plans in place by July 14th, have the most to worry about in terms of “passporting rights” and EU-wide regulations. Several have confirmed that some operations will move out of London to other EU capitals. Bank of America (BOA) has picked Dublin as its main base for EU investment banking and markets operation after Brexit; a small number, for now, of the 4,500 staff who currently work in London will move to new offices there, as well as new hires. Barclays will also be beefing up its existing office in Dublin to use its EU banking licence there, again with a mixture of newbies and transfers from London.

Goldman Sachs, which employs about 6,000 in Britain, will add hundreds of staff to its existing EU offices, bringing new people and some from London. Some were cheered by news from Deutsche Bank on August 1st that it had signed a lease for a new London headquarters. But it also confirmed that it will move parts of its business to Frankfurt. Japanese banks, such as Nomura and Daiwa, have said that they intend to make Frankfurt the main base for EU clients. Lloyd’s of London, an insurer, will open a new subsidiary in Brussels.

“Everyone is planning around a hard Brexit,” says Matthew Austen of Oliver Wyman, a consultancy which reckons the wholesale-banking sector is on course to lose 12,000-17,000 jobs. Banks are keeping these first moves to a minimum, to avoid disruption, but that number could double.

Such shifts will lead to losses elsewhere. Fintech, worth about £7bn annually, is particularly vulnerable to post-Brexit restrictions on the movement of EU labour because an unusually high proportion of its executives, coders and designers are European. Some of the most prominent companies are implementing their own contingency plans for the post-Brexit world. Taavet Hinrikus, the Estonian co-founder of Transferwise, a tech unicorn (a startup valued at more than $1bn), says that its global headquarters will remain in London but the company will open a new headquarters somewhere else in Europe. Azimo and PPRO, both online money-transfer businesses, will open offices in Dublin and Luxembourg respectively.

Smaller fintech businesses are also getting ready. Cypriot-born Alex Loizou co-founded Trouva two years ago when, he says, London was “ten steps ahead” of anywhere in Europe. It provides a platform for boutiques to sell online. The company employs 30 people in London, but Mr Loizou is opening an office in Lisbon, where he will recruit about five more. “It’s insurance,” he says, giving him access to EU talent and the protection of EU regulation.

Companies in other industries are preparing for life outside Britain, too. Julian Sarkar runs Zanos Aromas, which imports ingredients for fragrances. It trades mostly outside the EU, but Mr Sarkar is opening a new company in Dublin to keep his European business free from any post-Brexit regulatory tangles.

Or take European Pubs, which operates bars and restaurants in French resorts frequented by British skiers. The chief executive, Charles Owen, has built his firm on the back of one bit of EU regulation, the Posted Workers Directive, which enables him to send British staff to work in the Alps for up to ten months a year on British pay and conditions. Employing EU workers would add about 40% to his wage bill, he says, and destroy the business. Mr Owen wants to open a subsidiary in Dublin so that he can continue operating in the EU.

In all these cases, money and resources that would have been invested in Britain are now being redirected overseas. And contingency planning itself costs money that could otherwise be spent on the core business. HSBC is the first bank publicly to put a price on Brexit. On July 31st it said that the associated staff moves, legal fees and more could add up to $300m.

Businesses have been lobbying more actively for a soft Brexit since the election in June. Nonetheless, wise bosses are still preparing for the harder version.

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