RBS Says Government Starting to Worry About Post-Brexit London
(Bloomberg) -- Royal Bank of Scotland Group Plc Chairman Howard Davies said banks’ dire warnings about Brexit are finally getting through to the British government.
“In recent weeks we have seen a much greater realization of the much greater disruptive impact of a disorderly Brexit,” Davies said Friday. “The fact that the Bank of England has asked people to share their contingency plans” means politicians “are now seeing there are potentially quite serious consequences for London, which could happen in a rapid and unplanned way if we don’t get some transition arrangements.”
Since Prime Minister Theresa May lost her majority in June, Chancellor of the Exchequer Philip Hammond has led a shift among May’s cabinet to a view that a potentially lengthy transition period to leave the European Union is crucial. While cabinet ministers have sometimes openly contradicted each other, Trade Secretary Liam Fox and Environment Secretary Michael Gove, who both campaigned for Brexit, have endorsed a stopgap.
“We are modestly encouraged people are starting to understand what the stakes are,” Davies said at a press conference to mark the bank’s second-quarter results. “The government’s more recent rhetoric about the need for a fairly lengthy transition period strikes us as being more realistic. I think we are in a better position now than we were even three months ago.”
Cabinet ministers’ rhetoric has shifted as details of global investment banks’ worst-case contingency plans have started to emerge in recent weeks, after prodding by Bank of England Governor Mark Carney. Before losing her majority, May was perceived as seeking a harder Brexit where EU market access for London bankers would take a back seat to curbing immigration.
Since then, Hammond and Home Secretary Amber Rudd have laid out a vision for a transition period allowing free movement of EU nationals to Britain to continue for up to three years after Brexit, though Fox has said that would “not keep faith” with last year’s vote to leave. Hammond has suggested a three- or four-year phase-in for whatever emerges as the post-Brexit regime, while other ministers want a shorter timeframe.
The BOE last month asked banks for outlines of what they would do if the U.K. is cut off from the EU’s single market. Deutsche Bank AG is preparing to shift half of its 8,000 London employees and as much as 300 billion euros ($355 billion) of assets out of the country. HSBC Holdings Plc is planning to move about 1,000 roles at the cost of $300 million, while Wall Street giant JPMorgan Chase & Co. has said 500 to 1,000 jobs may initially be relocated.
RBS announced Friday it’s picked Amsterdam as its post-Brexit EU trading hub and was preparing to move 150 jobs to the Dutch city. The operation will cost “in the low tens of millions” to set up, with annual running expenses at about the same amount.
RBS has noted a recent decline in demand for lending, especially in the manufacturing sector, as companies delay investment decisions while the outcome of Brexit negotiations remain up in the air.
“People are becoming more hesitant, and that is Brexit-related,” Davies said. “People are sitting on their hands a bit, thinking before they put a significant investment in place, they want to see what the U.K.’s market access is.”
Across the industry, the Bruegel think tank has said London could lose 10,000 banking jobs and 20,000 roles in financial services as clients move 1.8 trillion euros of assets out of the U.K. after Brexit. Other estimates have ranged from more than 200,000 jobs to as few as 4,000.