A lot of news have shown concern about how banks are considering to move out of London/UK, primarily to Paris because of several initiatives undertaken by France to invite banks in London to Paris. Banks in UK are considering to relocate to other European Union cities (mainly to Paris) to carry on their businesses with the bloc of 27 remaining countries especially if U.K. ceases to be a member of the European Union’s single internal market. About 13,500 financial firms do business into and out of the U.K. under European Union passporting rules. The EU’s passporting system allows a firm authorized in one member state to do business in other countries of the European Economic Area — currently comprising the EU plus Iceland, Liechtenstein and Norway. It’s a major attraction for the big foreign banks, such as JPMorgan Chase & Co. and Citigroup Inc., that base their European operations in London.
The City of London is considered the heart of Europe’s financial sector. But its future is threatened by Brexit. Sadiq Khan, the mayor of London, said “Securing privileged access to the single market must be the top priority for the negotiations… Nothing else will do”
But if that doesn’t happen, moving to Paris won’t be a wise decision by any banking firm. Not because Paris is less welcoming or has poor infrastructure to carry out banking services but because France poses the same threat as of UK of leaving EU and even adopting MORE protectionist trade and immigration policy than UK.
While presidential candidate Emmanuel Macron is pro-EU and believes in free trade and is inviting banks and other talents from UK to Paris. On the other hand Marine Le Pen, president of National Front Party, and the presidential candidate for coming elections demonstrate need to exit EU. She is the favourite to win the first round of voting but is unlikely to become the next French president, as per various polls and analysis.
Banks must consider the long term political scenario of France before moving to Paris. Although Le Pen is less likely to win this term, she or her party can win in the long run. Whatever be the outcome in this year’s election, the risk of Frexit prevails in the long term. If that happens, France is more likely to exit EU which may again make the banks to consider relocation to continue their business with other EU countries (especially if France will adopt protectionist trade policy). This will hit hard on banks profit, reputation and even relations (with government, customers and public) as they require capital and efforts to establish themselves at new places.
Nations such as Hungary and Netherlands are also risky places as some of the right wing parties of these nations are too considering leaving EU. Dublin is among a number of European cities seeking to woo firms considering a move away from London. Ireland’s central bank has been receiving applications for licences from UK authorised financial firms seeking to relocate from London.
However, The Telegraph article stated four reasons for which banks in UK will not leave London. According to The Telegraph article – 1)Scale of banking industry in UK and advantages of being close to each other, 2) Costs of setting up infrastructure, 3) Rule of law being favourable for banks to operate and several tax benefits and 4) Culture including languages, customs etc makes it easy for banks to operate and thrive in London are the reasons why banks will not leave UK. However, there are no doubts that there will be high rate of job loss. JP Morgan is soon to cut the jobs to shift the employees to other European countries while HSBC, UBS, Goldman Sachs are warning thousands of job cuts and shifts to other EU cities, with Paris being priority. Summing up what Paris may seem like now, it is a loss full decision keeping in mind future political scenarios.
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