Banks planning for the “worst case” post-Brexit says City of London policy chief

International banks and financial institutions are making “worst-case” preparations to move up to 20 percent of staff overseas in anticipation of the UK’s withdrawal from the European Union, the chairman of the City of London’s policy and resources committee has warned.

Mark Boleat (l), Helen Gordon of Grainger and panel chair Sir Edward Lister, chairman of the HCA
Mark Boleat (l), Helen Gordon of Grainger and panel chair Sir Edward Lister, former deputy mayor of London and current chairman of the HCA

Speaking at CBRE’s bi-annual London Market Insights event in Mayfair this morning (1 November), which considered London after Brexit, Mark Boleat said that financial services firms are quietly preparing their post-Brexit future with scenarios ranging from 2,000 to 75,000 staff being transferred to outside the UK, depending on the outcome of the UK’s negotiations.

“Financial institutions cannot wait until this is settled,” said Boleat. “Businesses are now doing planning for worst-case scenarios because they are required to do so by customers and regulators. Lots of time and energy is going into protecting their existing business.”

Speaking on the same panel, Oxford Properties chairman and CEO, Blake Hutcheson, cited a survey of Canadian banks which said up to 20 percent of staff could be pulled out of the UK. Boleat agreed that the figure was a “fair assessment” of international banks’ most extreme scenarios.

Blake Hutcheson
Blake Hutcheson

However, Boleat stressed that whether banks stay or go will not be a binary decision based on the outcome of the UK’s EU exit. “Some of the business of some of the banks will go and we want to keep that to a minimum. If we finish up with something equivalent to financial passporting, it might be aborted.”

Canada-based Hutcheson described London as the “greatest city in the world” but warned that it is imperative that the property industry manages the supply of floorspace in the market. “I don’t see cap rates changing; there’s a mountain of money focussed here no matter what. I do see the fundamentals changing and it is up to us to control supply.”

Hutcheson added that Oxford has purchased London property in the wake of the EU referendum at around a 5 percent discount to pre-Brexit pricing, reflecting a 20 percent discount when the drop in currency is taken into account. “We’ve also brought some things to market and are getting very competitive pricing. There’s a deep pool of buyers.”

Helen Gordon
Helen Gordon

Helen Gordon, CEO of residential developer Grainger, said that investment in London’s infrastructure and housing stock is essential to the city’s competitiveness. “We are on the cusp of a real push for the PRS market; there’s about £50 billion poised to be invested in the sector. A decade ago, one out of ten people rented, now it is one out of four in London.”

Gordon added that she would like to see the 3 percent increase in stamp duty for second homes including buy-to-let be reversed in chancellor Philip Hammond’s first Autumn Statement on 23 November.

Also speaking on the panel, economist Trevor Williams from the Institute of Economic Affairs shadow monetary policy committee, remarked that the biggest challenge facing the UK economy in the aftermath of the EU vote is the need to increase productivity. This can be achieved, he said, through a combination of increased education and vocational training as well as bottom-up infrastructure projects driven by the private sector rather than politicians’ “vanity projects”.

Trevor Williams
Trevor Williams

“The UK is a low productivity economy,” said Williams. “A weaker exchange rate is not a panacea from which to solve problems. The only way forward is to increase productivity.”

Financial passporting rights were highlighted by panellists as the priority they would lobby for if they had a seat at the Brexit negotiations.

During a presentation on the London economy at the event, CBRE’s head of London research, Kevin McCauley, said: “Loss of passporting rights means banks loose access to very important and profitable markets and they will look very carefully at London and moving some operations to the EU.”

Miles Gibson (l) and Kevin McCauley
Miles Gibson (l) and Kevin McCauley

Alongside head of UK research Miles Gibson, McCauley admitted that the London market has “softened somewhat”, although Q3 saw a rebound with a clutch of large lettings.

Office take-up this year has been 8.4 million square feet, 10 percent below the 10-year average. Office supply stands at 13.6 million square feet, 6 percent below the average. Rents are unchanged but forecast to fall, with City rental levels expected to experience a 6 percent drop peak-to-trough and rent-free periods starting to increase.

Overall, the researchers presented a positive case for post-Brexit London. Gibson pointed out that London’s GDP has grown at 3.8 percent per year over the past five years, three times as fast as Paris and twice as fast as Frankfurt and added that London originates more cross-border bank lending than any other country, accounting for 20 percent of the global market.

“In 2015, London’s population reached 8.6 million meaning more people live in the capital than ever before. London is now West Europe’s most populous city,” he added.