U.K. Prime Minister Theresa May’s recent speech set the scene for what the post-Brexit world will truly look like — and the whole “soft Brexit” idea is officially off the table. In this week’s Brexit Tracker, we get a glimpse of what’s to come when Article 50 is officially triggered sometime in March, why financial leaders are heading for the hills and what JPMorgan Chase CEO Jamie Dimon really thinks about the Brexit vote.
May Takes The Brexit Hard Line
The British People voted to leave the European Union (EU) — for real — and that is exactly what Prime Minister Theresa May said the government intends to do.
While some were hopeful that May would support a “soft Brexit,” which proponents described as freeing the U.K. from some of the EU’s regulatory structures and benefits but keeping it involved in the common labor market and able to “passport” various services across national boundaries, it looks like that won’t be happening.
May made it clear in recent remarks that the U.K. will be leaving the single market as soon as Article 50 goes into effect, which is slated for March. However, she did advocate strongly for a robust and fully negotiated free-trade deal for the U.K. and the EU and for London’s benefits as an international trading hub.
In her speech, May offered up 12 principles that will help guide the exit, and her administration said that Britain will not look to change or extend the two-year period that will mark negotiations on just how Brexit will proceed.
But for now, things are not looking great for London’s future as a financial services hub.
Reaction has been rather swift, and many commentators are stating that there will be less investment from other nations into Britain and exports are likely to slow from them toward that country.
May also had some unusually strong words for the assembled about the dangers of globalism and the politics of “division and despair” that tends to rise out of resentment of it.
“Talk of greater globalization can make people fearful. For many, it means their jobs outsourced and their wages undercut. It means having to sit back as they watch their communities change around them,” May noted. “And in their minds, it means watching as those who prosper seem to play by a different set of rules, while for many life remains a struggle as they get by but don’t necessarily get on.”
Bankers On The Move?
As the reality of Brexit continues to fully sink in, London’s ability to hold onto its title of Europe’s premiere FinTech hub is seemingly increasingly less likely.
Following May’s latest speech on Brexit and confirmation that Britain will be pursuing a “hard Brexit” strategy, a “flurry of senior financiers” appeared at the World Economic Forum in Davos to discuss how they can transfer large chunks of their operations of out the U.K.
Though bankers have been largely positive about the speech — and the clarity provided therein — it seems that it also kicked off a countdown to begin relocation out of London.
Axel Weber, the one-time head of the German central bank (now the chair of UBS), told the media that around 1,000 jobs out of the 5,000 or so the Swiss bank has stationed in London will likely be relocated as a result of the Brexit.
But UBS is far from alone in what many are calling an exodus of banks from the once world-renowned FinTech capital.
HSBC has also confirmed plans to move 1,000 roles in its London-based investment bank to Paris. However, Goldman Sachs denied a report in Germany’s Handelsblatt that it will cut its U.K. staff numbers to 3,000 from 6,000 with a partial relocation to Frankfurt.
“There remain numerous uncertainties as to what the Brexit negotiations will yield in terms of an operating framework for the banking industry,” Goldman Sachs confirmed. “As a result, we have not taken any decisions as to what our eventual response will be, despite media speculation to the contrary.”
While some are predicting a process that will expensive and arduous but not terribly difficult when it comes to adjusting to the new order in the EU, there are others who remain concerned about the level of difficulty involved in working in both the U.K. and the EU as separate entities.
Dimon’s Brexit Diagnosis
In a recent interview with Bloomberg Television, JPMorgan Chase (JPMC) CEO Jamie Dimon weighed in on several subjects, including how capital rules on banks need to be examined and possibly scaled back as the final days of the Euro region approach.
In speaking about Europe, Dimon said that a splintering of the region might be in the offing if leaders do not spend time confronting populism; otherwise, “the eurozone may not survive.”
One key is to understand what led to the Brexit vote, with attendant issues on what Dimon termed “political things about immigration, the laws of the country [and] how much power goes to Brussels.”
JPMC has noted that as many as 4,000 of its 16,000 U.K.-based staff will likely be affected as a result of the Brexit.
“It looks like there will be more job movement than we hoped for,” Dimon told Bloomberg TV. “We don’t want to — it is not a threat — it is just a fact that we will have to accommodate the new requirements.”
When it comes to the banking sector in the U.S., Dimon said that he does not favor a full-scale rollback of the Dodd-Frank Act, preferring instead that the new Trump administration and Congress “should open it up, look what worked, look what didn’t, recalibrate it, modify it, change it to accomplish what we want to do, which is what I call good regulation, not just more regulation."
As part of that examination, he added, requirements for liquidity and bank capital should be reconsidered, as capital could be freed up rather than being kept on the books.
Readying For The Post-Brexit Era
Britain is officially breaking from its traditional Conservative laissez-faire economic policy.
According to Reuters, the country’s government announced on Monday (Jan. 23) a shift toward a new interventionist approach, which will require increased collaboration within key industries in exchange for government support.
The aim of Prime Minister Theresa May’s “Modern Industrial Strategy,” the news outlet explained, is to increase productivity, boost industrial production and foster more investment in technology as well as research and development.
“Underpinning this strategy is a new approach to government, not just stepping back and leaving business to get on with the job, but stepping up to a new, active role that backs business,” May stated in a consultation document on the policy.
U.K. businesses will be asked to work together in order to tackle industry-specific challenges with the promise that the government will in turn provide “sector deals” to help address regulatory barriers. According to Reuters, the government will also examine how trade and investment deals can be used to grow exports as well as support initiatives to create new leadership institutions, increase skills and drive innovation.