11 October 2016

FT: Brexit set to push VTB’s Europe hub out of London

Russia’s VTB Bank has become the first big lender to say publicly it will move its investment banking headquarters out of the UK because of the disruption expected to be caused by the country’s decision to leave the EU.

Herbert Moos, deputy chairman and chief financial officer of VTB, said the board of the state-owned lender was considering several alternative locations for its European hub, including Frankfurt, Paris and Vienna and would decide later this year.

“We did have bigger plans for the London office, but after Brexit we are scaling them down and building them up elsewhere,” Mr Moos told the Financial Times. “Our board will decide where by the end of the year.”

Prime Minister Theresa May has promised to trigger the process by which the UK will leave the EU by the end of March, setting a course to exit the bloc by 2019. Several big banks warned before June’s EU referendum they could move thousands of jobs out of the UK in the event of Brexit, but there has been little sign of this happening so far.

Since the vote, most banking executives have stressed the need for the UK to maintain access to the EU’s single market for financial services and to agree a transition period to prevent this access being lost while a new trade deal is finalised.

Several US banking executives told a conference in London on Tuesday that without clarity on whether the UK will keep access to the single market, they may start moving people out of London early next year. “How do we and when do we start making decisions … knowing the plan is ready to go … it could be in the first quarter of 2017,” said James Bardrick, head of UK for Citigroup.

Rob Rooney, head of Morgan Stanley International, said: “It really isn’t terribly complicated. If we are outside the EU and we don’t have what would be a stable and long-term commitment to access the single market, then a lot of the things we do today in London we’d have to do inside the EU 27.”

As many as 71,000 jobs and about £10bn in tax revenues could be lost from the UK’s financial services sector and its wider support services if severe restrictions are imposed on the UK’s ability to trade with the rest of the EU, according to a report published last week by the consultancy Oliver Wyman for CityUK, the lobby group.

VTB Capital employs several hundred people in London, including some centralised functions, such as its global anti-money laundering and compliance units. It also has offices in several other European countries, including Germany, France, Austria and Ireland.

“You cannot postpone this decision, as I do not think this [Brexit negotiation] will be a quick process,” said Mr Moos, one of a number of deputy chairmen under VTB boss Andrei Kostin, adding its hand was likely to be forced by European regulators.

“I doubt that the ECB will accept us having critical functions being performed outside the EU,” he said. “And building two central functions is expensive.”

“We are looking at several factors to decide where we switch our European headquarters to, including regulation, fiscal policy and the talent pool. Frankfurt, Paris and Vienna are all being considered,” he said, adding that London would “remain an important presence for us, just not our European hub”.

Full article on Financial Times (subscription required)

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