During his trip to London this week, US Commerce Secretary, Wilbur Ross, wasn’t only defending revelations in the Paradise Papers that he’d invested in a shipping company with ties to the Putin family. He also attended a “closed-door meeting” with executives from JPMorgan, Goldman, HSBC and other banks. The meeting took place over lunch in the exclusive St James’s District (hedge fund land these days) at Wiltons restaurant. Wiltons, if you’re not familiar with it, started as an oyster stand in 1742 before developing a clientele of English aristocrats and foreign dignitaries and latterly, bankers. Ian Fleming, creator of the James Bond novels and bon vivant, listed it as one of his top 10 restaurants in the 1950s.
During lunch, the banks warned Ross that time is running out for the UK government. The failure to provide clarity on Brexit means that they will be forced to start moving jobs out of London. According to the FT:
A group of large financial institutions with big London operations, led by Wall Street’s pre-eminent banks, have told the US commerce secretary that Britain’s unstable government and slow progress in Brexit planning may force them to start moving thousands of jobs out of City in the near future. The warnings came on Friday during a closed-door meeting between executives from the banks, which included JPMorgan Chase, Goldman Sachs and HSBC, and Wilbur Ross during the US commerce secretary’s visit to London, according to people briefed on the discussions.
Those briefed on the talks, which were held over lunch at Wiltons restaurant in London’s exclusive St James’s district, said the banks were particularly concerned by the failure of Britain to provide clarity over whether it will secure a transition deal to smooth the changing regulatory regime after the UK leaves the EU. They warned they had even less clarity over what a final Brexit deal will look like. Absent clarity from the government about post-Brexit plans, the executives said jobs would move back to the US or to other European capitals as banks begin to enact their worst-case contingency plans, the sources said. ”There was broad discussion around the lack of progress in the Brexit talks and some discussion around various political scenarios,” one person briefed on the talks said.
Not surprisingly the banks declined to comment when contacted by the FT, which also discovered that Morgan Stanley failed to show up to the gathering. Shame on it. The FT’s anonymous sources emphasized that bank executives communicated a greater level of anxiety regarding Brexit negotiations than in the past. Decisions on job relocations are imminent, as FT explains:
US banks have been among the loudest critics of Britain’s decision to leave the EU since last year’s referendum, with Goldman boss Lloyd Blankfein recently tweeting he anticipated “spending a lot more time” in Frankfurt post-Brexit. But the recent warnings in private meetings with Mr Ross — as well as similar soundings taken by the City of London Corporation, the capital’s local government, on a fact-finding mission to Wall Street and Washington — included a level of urgency not seen in previous criticisms, those present said. The banks warned Mr Ross that a “point of no return” is fast approaching, when they must start moving jobs, capital and infrastructure in order to meet the March 2019 Brexit deadline if no transitional deal is secured.
In London’s City A.M. financial newspaper yesterday, the City of London’s policy head, Catherine McGuinness, highlighted rising nervousness in the US financial sector about Brexit.
City of London Corporation's policy chief Catherine McGuinness was told the sector had moved beyond its initial "surprise" and "curiosity" at the events unfolding on this side of the Atlantic, with fear creeping in that no real movement had been made since last summer's referendum. “The message was that this is taking too long and it may have implications beyond your borders," McGuinness said. "[They] are becoming nervous," she said. "It wasn’t just curiosity, it was concern at the lack of progress that we have been making, and nervousness that it had implications beyond Europe’s borders in terms of causing disruption to markets.”
While New York expects to benefit from some of the disruption, the overriding sense was that Brexit could cause global ripples if progress failed to materialise, she added. Fears that the UK would simply "crash out" were also growing. She was speaking after a three-day fact-finding mission, where she met US Treasury officials, as well as Commodity Futures Trading Commission (CFTC) chairman Chris Giancarlo, and representatives from the International Swaps and Derivatives Association (ISDA). McGuinness noted that the recent IRSG report, which set out a blueprint for how financial services might continue to do business after Brexit, had been welcomed in the States. But she acknowledged that progress on the matter back home was painfully slow, saying she had "very little sense" of when - or if - a financial services position paper could be expected from the government.
Back to the lunch between Ross and the bankers, the one positive note which emerged for the UK government is that the prospect of a Labour government headed by Jeremy Corbyn fills them with dread. That’s scant consolation, however, as the banks are believed to have drawn up contingency plans to shift 10,000 jobs out of London in the short-term. This number was confirmed by the Bank of England last week. However, the FT notes a much larger exodus is possible if the government fails to set up a transitional deal as part of Brexit.
Sam Woods, deputy governor (of the Bank of England), said that a longer-term 75,000 job-loss figure cited in a previous report by Oliver Wyman, the consultancy, was “plausible”. Mr Woods also said that a transitional deal was an asset whose value diminished through time, as banks scrambled to get in place for March 2019.
Still, we wonder how sympathetic to London’s Brexit challenges Ross was during the lunch. After all, this is the man who said last December that Brexit was a “God-given opportunity” for other countries to take business away from the UK. Finally, it also crossed our minds as to who picked up the bill? We doubt that it was Ross, or Deutsche Bank, if it was invited. Our guess is Goldman, but what was the catch?