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Financial Firms and : Where to?

July 24, 2018

A little less than two weeks ago, the UK released a white paper on the future relationship between Britain and the EU. The white paper focuses on what happens if Britain leaves the EU (and the Single Market) without a partnership deal for the future. Among other consequences, the UK will no longer be able to operate under the EU’s “passporting” regime.

What is passporting (and why does it matter)?

EU states have opened their national markets to the provision of financial services directly from other EU states. They have made it easier for banks and financial services firms to establish branches outside of their home country (instead of requiring the establishment of more complex and costly legally separate subsidiaries). Once a bank or financial services firm is established and authorized in one EU country, it can apply for the right to provide certain defined services throughout the EU. It can also open branches in other countries across the EU with relatively few additional authorization requirements and regulatory hurdles. This pan-EU authorization is its financial services “passport”.

Without EU passporting rights, insurance companies based in the UK will no longer be able to write business into the European market. Similarly, the ability for an American bank with a subsidiary, which can currently sell services across the EU as if it were a European financial services company itself, will disappear. (Britain and the EU have agreed on a transition deal bridging Brexit in March next year until the end of 2020, but it has yet to be ratified.)

In an effort to forestall the loss of pan-European market access, many firms have activated contingency plans by moving some of their UK operations overseas and re-domiciling some of their subsidiaries where necessary. See Table 1 below for a partial list detailing financial firms and insurers that have made such announcements since 2017.

Note, even with these moves, firms’ presence in London is not disappearing. Bank of America re-upped its London lease for 10 years; BNY Mellon is looking for 300,000 square feet for a new London HQ for a 2022 move, while Northern Trust is searching for a new London base after its current lease expires in 2022 as well. In the largest lease of 2017, Deutsche Bank took 500,000 square feet at 21 Moorfields in the City of London, while in 2018, SMBC Nikko, a subsidiary of Sumitomo Mitsui Banking Corp, took 161,000 square feet at 100 Street.

Many of these firms have backed away from their initial estimates as to the impact of Brexit on London employment. As but one example: In the wake of the Brexit vote, JP Morgan’s Jamie Dimon had said that around 4,000 jobs could leave the UK. That figure was later lowered, with JP Morgan now expected to move between 500 and 1,000 staff to cities including Frankfurt, and . According to a Reuters survey conducted in March, only 5,000 jobs will be shifted out of Britain or created overseas by March 2019 because of Brexit--half the number forecast six months prior to the survey.

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Table 1: Banks

Firm Estimated # of Staff Moving (or New Location Most Recent Jobs Created) Announcement Date Aberdeen Standard Life Not Specified (n/s) Dublin Feb 2018 Bank of America Investment banking (up to 400) Dec 2017 Back office (125) Dublin Oct 2017 40 – 50 (locally hired, not May 2017 Barclays Frankfurt; possibly 150 to Dublin) transferred) BNP Paribas 150 -300 out of 8,500 in the UK Paris Jul 2017 Already has fully-licensed bank in Apr 2017 BNY Mellon < 20 Brussels Citigroup 150 - 200 out of 6,000 in London Frankfurt Dec 2017 Credit Agricole 100 out of 1,000 in London Paris Aug 2016 Credit Suisse 250 out of 5,500 in London Frankfurt and Sep 2017 Daiwa 100 Frankfurt Feb 2018 Deutsche Bank “Several hundred traders” Frankfurt May 2017 Goldman Sachs 20 jobs in Asset Management Dublin Dec 2017 Up to 1,000 jobs in IB Frankfurt (& potentially) Paris Dec 2017 HSBC < 1,000 IB jobs Paris Jul 2017 500 from Custody/Fund Services Dublin May 2018 Has banking licenses in Dublin, May 2017 JP Morgan Frankfurt (IB) and Luxembourg 300-400 (Treasury Services); also planning to boost Paris, Madrid and branches Mizuho Frankfurt Jun 2018 200 to Frankfurt (broker/dealer) Jun 2017 Morgan Stanley 300 ~ 80 to Paris / ~ 20 to Dublin (asset mgmt) (commercial banking Apr 2018 MUFG < 100 (of 2,100 jobs in London) hub) Paris (IB branch) Nomura “Several dozen” IB and Back Office Frankfurt Jun 2017 Unspecified (employs 1,500 in April 2018 Northern Trust Luxembourg London) RBS 150 Amsterdam Feb 2018 300 May 2018 Societe Generale Paris (out of 2,000 IB jobs in London) Standard Chartered 20 Frankfurt Sep 2017 Sumitomo n/s (1,000 jobs in London office) Frankfurt Feb 2018 UBS < 200 out of 5,000 in London Frankfurt Dec 2017

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Table 2: Insurers/Investment Managers

Firm Estimated # of Staff Moving (or New Location Most Recent Jobs Created) Announcement Date Admiral not specified (n/s) Madrid/ Feb 2018 AIG “less than a dozen” Luxembourg Dec 2017 Aioi Nissay Dowa n/s Luxembourg Oct 2017 n/s Dublin May 2017 Beazley 18 Dublin Jul 2017 Britannia n/s Luxembourg Apr 2017 Chaucer n/s Dublin Dec 2017 Chesnara n/s Amsterdam Aug 2016 (not decided) Chubb Paris Sep 2017 CNA Hardy n/s Luxembourg Feb 2018 FM Global n/s Luxembourg May 2017 Hiscox 10 Luxembourg Dec 2017 Legal & General IM n/s Dublin Dec 2017 Specialty Mkts n/s Luxembourg Jul 2017 Lloyd’s of London 40 (out of 600) May 2018 Markel All new hires (560 in UK) May 2017 MS Amlin Brussels Jun 2018 QBE No reduction in London staff Brussels Jun 2017 Royal London n/s Apr 2018 RSA “Up to 10” Luxembourg Jun 2017 Sompo n/s Luxembourg April 2018 Standard Life Aberdeen < 20 Dublin Feb 2018 Tokio Marine n/s Luxembourg May 2018 XL Group < 100 Dublin Sep 2017

RESEARCH CONTACT: Heidi Learner Chief Economist [email protected] 1+212.326.8648

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