By Stephen Castle, NY Times, Feb. 9, 2016
LONDON–With a referendum looming on whether Britain will leave the European Union, the country’s voters seem sharply divided on whether to stay or go.
But for the big banks that dominate the City, as London’s financial industry is known, there is little disagreement: They don’t want to risk going it alone.
London is a major financial gateway, the biggest and busiest in Europe and rivaling Wall Street as a hub of international trading in stocks, bonds, currencies and commodities. In the extreme, banking executives worry about a painful economic and financial fallout from a British exit–known, in the political shorthand, as a Brexit. Even without a major shock, it could force global banks like HSBC, JPMorgan Chase, Goldman Sachs and Morgan Stanley to reassess their European operations, a logistical challenge that would affect the most basic transactions.
“London is a global center; it’s also a European center–one is contingent on the other,” said Alan Houmann, managing director of European government affairs for Citigroup. “Financial institutions come into London from third countries, like the U.S. and from the rest of the E.U., so this creates this huge ecosystem at which London sits at the center.”
Prime Minister David Cameron, who wants his country to remain in the bloc, is negotiating changes to the country’s terms of membership ahead of a summit meeting with European leaders on Feb. 18 and 19. (The referendum in Britain could come as soon as June.) With his counterparts in Europe, Mr. Cameron is trying to secure Britain’s status in the financial hierarchy by seeking assurances that banks and other firms will not be discriminated against as the eurozone becomes more integrated.
He is navigating a political minefield. As much as Germany and France want Britain to stay part of a club that has helped reinforce peace and regional stability for decades, other members worry about the precedent of granting any one country too many side deals or breaching fundamental principles of unity.
And the big banks are hardly a sympathetic cause, making industry executives somewhat more tempered in their comments on a Brexit. The British public blames highly paid bankers for the financial crisis and the scandals over currency trading and interest-rate rigging.
British businesses of all sorts benefit from being able to buy and sell in the European Union’s estimated $15.1 trillion common-market economy and its 500 million people. And though immigration is a contentious issue, British companies benefit from their ability to hire any European Union citizen.
Bankers do not exactly love the raft of regulations in Europe, like the cap on bonuses and a proposal to tax financial transactions. But many believe that a Brexit would be problematic.
A big concern is that a Brexit could set off an economic downturn for Britain and a plunge in the country’s currency. Financial services represent more than 14 percent of Britain’s nearly $3 trillion economy, according to the City of London Corporation, the de facto municipal government for much of the financial district.
Were Britain to leave the European Union, bankers in London might no longer have the automatic right to provide services to clients in other European nations–like securities trading, foreign exchange and investment management.
Britain would also relinquish its ability to help shape, block or amend European financial and banking laws. It could be demoted, in the catchphrase of anti-Brexit campaigners, from being a rule maker to a rule taker.
“Banks won’t disappear from London overnight, but they will over time if Britain votes ‘no,’ “ to the European Union, Michael Sherwood and Richard Gnodde, the co-chief executives of Goldman Sachs International, argued in an op-ed article in The Times, the London newspaper.
Even bankers who operate solely within Britain acknowledge the potential disruptions.
Secure Trust, a small, domestically focused, British bank, has little to gain commercially from the European Union’s single market. The bank’s chief executive, Paul Lynam, is also unhappy with the way European regulators interpret international rules. He notes, for example, that the European Union requires Secure Trust to maintain capital reserves–cushions against risk–that he says are larger than necessary for an institution like his that mainly serves consumers and small businesses.
Although he believes that a Brexit would be “made to work,” it would most likely mean years of negotiation over the details of Britain’s new relationship with the bloc. This process, he said, would be “messy, costly, disruptive and time-consuming.”
Still, some in the City have openly contemplated a Brexit.
One is Norman Blackwell, a former adviser to two Conservative prime minsters, John Major and Margaret Thatcher, who is now chairman of Lloyds Banking Group. Last year, Mr. Blackwell told the House of Lords–where he is a member–that Britain’s relationship with the bloc might become “increasingly unsustainable.” He noted that his comments reflected his personal views.
And some hedge fund executives in the City would just as soon quit the European Union. Hedge funds have tended to chafe under the closer oversight that European regulators have demanded since the global financial crisis of 2008.
Even the big international banks that benefit most from the European single market assume they would probably survive a Brexit. Most have operations in the eurozone that could be expanded.
Some are already moving some operations from London to reduce costs. Credit Suisse, for example, opened a branch office in Dublin.
Dennis Edwards comment:
If it is true that the Rothschild family control all the banking interests in Europe, and if the plan is for One World Government, then it would seem to follow that the over-all interest would be for Britain to remain in Europe. Much of the press is supporting the idea of Britain remaining in the Union. I guess we will see how things work out. Which ever way Britain decides, I believe that those who are behind the scenes will use it for their advantage. If they cannot, they will punish any naughty children, like we are seeing in Venezuela, to make them get in line.
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