Behind the scenes, European cities are on a charm offensive to attract City jobs, finds Jasper Jolly
WITH Brexit negotiations reaching fever pitch, all eyes are fixed on the politicians wrangling over the UK’s new place in the world. But behind the scenes another battle is going on, with well-funded campaigns vying to attract business from the City of London.
After more than two years of to and fro, a picture is now emerging of which locations across Europe will be the winners as companies establish new entities on the European mainland. The government has adopted the Bank of England’s estimate that 5,000 jobs will likely leave London because of Brexit, and more roles will be created abroad to service client needs.
With less than six months to go until Brexit, the vast majority of major financial services firms now have plans in place to prepare for the worst possible outcome in their eyes – no deal – and have set about creating the structures to continue running their European operations when they lose the coveted Single Market passport.
Frankfurt has emerged as the clear winner on the banking front, with 25 banks choosing the German financial capital as the base for a new office or subsidiary – far ahead of Paris, which has attracted eight.
Hubertus Vaeth, managing director of Frankfurt Main Finance, puts his city’s success with the banks down to a targeted approach.
“We understood that we had very little chance with asset managers and we would not be the prime position for insurance,” he says. Instead, the lobby group launched a concerted charm offensive on 24 June 2016, the day after the vote, with Japanese and American banks in particular the objects of tailored presentations.
The campaign has not coincided with any major changes, but Angela Merkel’s CDU did push through one potential incentive as part of this year’s coalition agreement: offering loosened dismissal protection for high-earning bankers.
“We are not promising a bunch of flowers,” says Vaeth. “We are promising one rose, and delivering on it.”
Yet even the longest-laid plans can go awry. The slick presentation was recently undermined by a misjudged animated video in which “Frank Furt” flirts with a woman at a bar, jarringly discussing the availability of international school places and airline connections while buying her drinks.
For France, Brexit has coincided with another seismic political shift: a revolution in party politics, albeit one from the centre ground. Although highly critical of Brexit itself, President Emmanuel Macron has nevertheless used it to try to build up Paris as a financial centre.
Macron, a former Rothschild and Cie banker, is personally invested in the efforts to attract business. At one meeting including the bosses of some of the world’s biggest global asset managers Macron singled out chief executives and challenged them on their reasons for not basing more operations in Paris, according to one person present.
Fast-growing fintech firms, such as London-based banking services unicorn Revolut, have also been directly approached by the French government. At an event last month, finance minister Bruno Le Maire’s junior minister, Delphine Geny-Stephann, rolled out the red carpet to fintech firms, pitching directly for businesses to relocate or choose Paris as an investment destination.
Geny-Stephann says France’s aim is to boost its “attractiveness and competitiveness as a whole” through “deep structural reforms”, with or without Brexit.
Paris is aiming for a “positive regulatory environment” with a bill aiming to boost finance – which includes temporary pension contribution exemptions for foreign employees and a new framework for derivatives markets.
The broad scope of the reforms matches Macron’s ambition, but also means that there is no single area where Paris can claim to have a lead. Geny-Stephann says the French capital has worked to attract anchor firms across different aspects of financial services – such as interdealer broker TP Icap, asset management behemoth Blackrock and US banking giant Citigroup, and fast-growing London-based exchange Aquis – not to mention the whole European Banking Authority.
“It’s not about numbers or numbers of jobs,” says Geny-Stephann. “What we’d like to have in France is really the comprehensive ecosystem, the value-added.” One City heavyweight thinks Macron is too ambitious, and that he expects an arrival of finance jobs simply because he has stated the ambition as government policy. “It is a symptom of the French political mindset that if the President wills it, it will happen,” said the source – a French national who has worked in London for years. “In reality, French regulators are more measured in their expectations.”
Smaller financial centres have had to go for more niche – but still important – aspects of the business concentrated in London. Luxembourg, for instance, positioned itself as the centre for fund management, although it went for a more understated approach than rival public relations campaigns.
Nicolas Mackel, chief executive of Luxembourg for Finance, says his conversations with firms centred on political and economic stability, while also emphasising an ongoing relationship across the Channel, rather than wholesale business moves.
“We already had a very strong relationship with London,” he says. “We understood very early on that firms weren’t going to move entire operations.”
The lobby group was also pleasantly surprised by a string of insurers choosing Luxembourg, drawn by a dedicated regulator for the sector. Mackel expects an overall gain of 3,000 jobs across the sector – although noting that he sees Brexit as overall negative for Luxembourg, with the EU losing one of its strongest advocates for financial services. This is a commonly-held view among finance professionals across the continent. The UK will be missed, even if a few crumbs fall from the Brexit table and into their lap.
Amsterdam has chosen to leverage its credentials as a data transfer hub, targeting exchanges whose clients value millisecond advantages. It also offers extensive tax breaks for expats – although bonuses are capped at only 20 per cent of salary.
CBOE Global Markets, Nex, Tradeweb and Marketaxess and the London Stock Exchange Group have all chosen the city as a location for extra numbers, although it didn’t all go their way.
Dublin, meanwhile, has made some headway among asset managers, with Ashmore and Bailie Gifford the latest to join a line setting up new operations across the Irish Sea, which includes Standard Life Aberdeen, Legal & General Investment Management, Hermes Investment Management and Legg Mason.
Kevin Sammon, director of global corporate communications at IDA Ireland, the Irish development body, says around 40 companies in all have gone for Dublin. Their campaign focused on shared language and the common law system, unlike continental rivals with civil codes, as well as very business-friendly politics – Ireland has had a right-of-centre governments continually for almost a century.
The group has also been “expanding its Brexit-focused conversations with investors” this year, looking at technology, life sciences, law and broadcasters, as well as financial services.
Battles to come
While the battles for “day-one” job moves are mostly now decided, the fight for London’s prized clearing industry may prove the most controversial in the longer-term. Clearing houses act as middlemen in the trade of derivatives – used by firms to manage risks like currency and interest rate movements.
Clearing is the most-prized target for some European politicians, with the London Stock Exchange Group’s LCH currently dominant in clearing euro-denominated derivatives. There remains a widespread desire on the mainland to pull the clearing business back into the Eurozone, both so the European Central Bank can supervise its vital functions, but also because of the symbolism and jobs attached to such a victory.
Vaeth says Brexit “will change the landscape” for clearing, suggesting that moving clearing jobs out of London remains a key aim – particularly for Frankfurt-based Deutsche Boerse, whose merger with LSEG was effectively kiboshed by the Brexit vote.
However, the so-called “location policies” have faced stiff opposition from the UK. Chancellor Philip Hammond has criticised “protectionist agendas, disguised as arguments about financial stability”, while the normally politically-reserved Bank of England has repeatedly called upon European counterparts to match its move to
secure cross-border clearing even in a no-deal scenario.
The UK also has an ally in the head of the US Commodity Futures Trading Commission, Chris Giancarlo, who has repeatedly expressed concerns about the effects of location policies.
There remains little clarity on what the future UK–EU relationship will look like. European lobbying groups insist they want to work closely with the UK after Brexit, even if that sits uncomfortably with their desire to target core areas of the City’s business.
Nobody thinks the City will lose its crown, but it could lose a few jewels.