03 February 2021

Bloomberg: The City of London Is Now at the Mercy of Brexit’s Tug of War

Britain’s divorce deal barely touches banking and trading, and Europe is eager to develop its own financial center.In the beginning was the Big Bang. It was 1986, and the moribund British economy appeared stuck in an unbreakable cycle of postindustrial decline. Then came the jolt that opened up U.K. financial markets to the world and turned the City of London into the nation’s dynamo.

Banks gathered in the Square Mile, and companies flocked to list on the newly deregulated stock exchange. Caricatured gents in bowler hats meeting over tepid ale were displaced by a generation of Gordon Gekko-style traders. More than three decades of near unbroken growth ensued as the Big Bang propelled London to the status of Europe’s preeminent financial center with the vast majority of trading in bonds, euro-denominated foreign exchange, and derivatives.

Now the City of London has to contend with the fallout from a far less auspicious political explosion, and it’s one that could have an equally enduring legacy.

On the first trading day of the year, the impact of Britain’s withdrawal from the European Union became brutally clear. Billions of dollars of buying and selling shares found new homes on exchanges on the continent. At equities trading venue Aquis Exchange, 99.6% of European stock transactions shifted to Paris. Another exchange, Cboe Europe, saw 90% of that business move to Amsterdam. Billions more in derivatives trading then quit for New York, which also stands to gain from the region’s infighting.

Bank of America Corp., JPMorgan Chase & Co., and other big companies moved staff and money to cities such as Paris and Frankfurt to make sure they can continue doing business with European clients. CAP PLC">TP Icap Plc, the London-headquartered company that’s the world’s largest interdealer broker, said it could no longer serve all of its EU clients because it hadn’t moved enough staff to Paris. Even with the excuse of a global pandemic that’s prevented all but essential travel, French regulators were unmoved by the firm’s request for a temporary reprieve until restrictions had eased.

The damage isn’t yet fatal, and London has a long history of reinvention. The U.K.’s finance chief, Chancellor of the Exchequer Rishi Sunak, is aware of the risks for an industry that provides 10% of the British tax take and has plans to secure its future. The question is whether Brexit marks the start of an irreversible demise for the City of the Big Bang as thousands of cuts merge into a single bleeding wound. What’s sure is that the future of London as a financial hub is now at the mercy of the political winds on both sides of the English Channel. With the coronavirus still rampant and tensions high over access to vaccines, the omens don’t look good...

Bloomberg

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