As the Brexit deadline draws near with no deal between the UK and the EU in sight, some banks are making big last-minute moves.
The City of London was rocked by news that British bank Barclays will move €190 billion ($215 billion) of assets to an Irish subsidiary as part of its Brexit contingency plans. The move, which was approved by the UK's High Court, is one of the most high-profile departures to date, but it is not the only one, with some analysts predicting an exodus worth as much as £800 billion ($1 trillion) as the country hurdles towards the March 29 Brexit deadline.
Britain’s second largest insurer, Aviva, got High Court approval on February 19 to move €9 billion to Dublin. The Royal Bank of Scotland is preparing to move one-third of its investment bank clients and billions worth of assets out of the UK, lodging an application with Scotland’s supreme civil court to transfer European clients from its NatWest Market business to an Amsterdam subsidiary.
Earlier in the year HSBC moved ownership Polish and Irish unit from its London entity to its subsidiary in Paris. US banks have also been on the move. Morgan Stanley, Goldman Sachs, Citigroup, JP Morgan and Bank of America have all reportedly moved staff to rival European cities. Banking sector trade association UK Finance says even these precautions might not be enough.
“Time is running out to avoid a chaotic ‘no deal’ Brexit that would be catastrophic for the UK economy,” a UK Finance spokesperson told Global Finance. “Firms in the finance industry have put contingency plans in place to minimize disruption for their customers in a ‘no deal’ scenario, but critical cliff-edge risks remain including on the transfer of personal data and the operation of cross-border contracts.”
Barclays' departure could just be a taste of what is to come, say some. A survey of financial services firms by EY revealed thta 36% of companies tracked planned to move some of their operations from the UK to Europe or had done so already. This number rises to 56% amongst universal banks, investment banks and brokerages. Around 30% of companies confirmed at least one relocation destination in Europe, with Dublin and Paris among the most popular locations.
“The closer we get to March 29 without a deal, the more assets will be transferred and headcount hired locally or relocated,” said Omar Ali, UK Financial Services Leader at EY, in a statement. “Inevitably, the contingency plans are for Day 1 only, and in the event of ‘no deal’ will represent the tip of the iceberg as longer-term plans will be more strategic and extensive than those publicly announced to date.”
However, there is hope that for some banks it could still be business as usual, even in a no-deal scenario. The governments of Germany, France, Italy, the Netherlands and Sweden have all prepared legislation at a national level that could allow banks to continue to service $23.4 trillion of derivatives contracts from London. Ireland has also prepared emergency legislation to address potential disruptions not only in finance but health care, energy, and transportation as well. Executives from the European Commission have also been visiting member states to discuss Brexit preparations
This probably explains by Lloyds Banking Group—which has just unveiled a £4 billion pound dividend and share buyback for investors on Wednesday despite weaker-than-expected growth—seems relatively sanguine about the upcoming Brexit deadline. According to Reuters, Chief Executive António Horta Osório is banking on a last-minute deal between Prime Minister Theresa May and the EU negotiators. He said: “We are planning for a deal and a smooth Brexit transition that should lead the economy to grow at around the same pace you have now of about 1.0-1.5 percent.”