When Goldman Sachs gave £500,000 to the pro-EU campaign before Britain’s European referendum last year, opinions among those favouring remain were divided.
When Goldman Sachs gave £500,000 to the pro-EU campaign before Britain’s European referendum last year, opinions among those favouring remain were divided. I well remember a friend putting his head in his hands at the news of the bank’s donation. “That’s got to be worth several hundred thousand votes to the other side,” he wailed.
Well, you can’t win them all, not even if you are Goldman. But it takes more than a setback at the ballot box to keep a virtuoso lobbyist like “Government” Sachs down.
In the past few weeks, the bank’s boss, Lloyd Blankfein, has been conducting a not-so-stealthy Twitter campaign about Brexit. The aim? To persuade Theresa May’s government to deliver a transitional deal for the City of London no later than the spring of next year.
It has taken the form of teasing tweets from European cities. This month, Mr Blankfein enthused from Frankfurt about its “great weather”, and how he looked forward to spending “a lot more time” there. This week it was the turn of the French capital. “Struck by the positive energy here in Paris,” he tweeted. “Strong govt and biz leaders are committed to economic reform and are well thru’ the first steps. And the food’s good too.”
Behind the jocular veneer lies a simple and brutal message. Brexit has put in play the future of one of Britain’s biggest national assets — a global financial centre that generates high skilled employment and about £70bn a year in taxes. A large chunk of that business comes from the EU, where London dominates the wholesale financial markets.
Unlike many industrial companies, banks need licences to operate. Lose their ability to trade cross-border into Europe, and some of those bankers, with their lovely taxes, will be off.
Quite what deal Britain can in the long run cut with the EU remains uncertain. The other member states have varying interests. Not everyone can inherit the mantle of the bloc’s financial centre. One EU finance minister recently observed the last thing he wanted was for “London to float into mid-Atlantic”.
But the City craves certainty. In addition to Mr Blankfein, many other banks, the Bank of England, as well as City lobby groups, have been pushing hard for a transitional arrangement that would lock in the existing EU regime for a period after Brexit.
The issue is not one of principle. Mrs May has signalled her wish for a two-year interregnum. It is about urgency. Without almost immediate agreement on a standstill period, the banks say they will have to move activities without waiting for a final outcome. So, Goldman is hinting heavily that it might rent out large parts of its new 1.1m sq ft London building. Last month it signed a lease in Frankfurt for space to quintuple its German-based staff.
There is little doubt that this is piling pressure on the government. Brexit-related costs for business are one thing to manage. But it is quite another to pre-emptively pull apart the City money machine. It is one reason why Brexit secretary David Davis risked obloquy this week by buttering-up the bankers, proposing a special post-Brexit visa regime for City firms.
The bigger question, though, is whether the City’s demands on transition are necessary. Delivering such a deal would make the exit process vastly more difficult, forcing the government into contentious concessions on the “exit bill” before trade discussions, let alone securing any quid pro quo for its cash. Yet does the feared legal “cliff edge” exist in reality? Or is it a phantom that resides mainly in bankers’ minds?
There is a tendency to see so-called passporting as the only legally sound way to do cross-border EU business. But it is a relatively recent invention. Before that, those raising money came to London to do so. Indeed, it was then that the City’s pre-eminent status was secured.
Bankers worry about a legal cliff edge that would not only deprive them of the ability to do new deals, but also to service existing loans and contracts. This is excessively alarmist. International human rights laws protect an individual’s right to possessions. Financial assets, like real property, cannot simply be taken away without good reason. These safeguards ensure that existing products could still be serviced post-Brexit, according to a report by the lawyers Shearman & Sterling. As for new sales, there is nothing to stop clients from doing business through a UK affiliate or going through the process of “reverse solicitation” — effectively asking a London institution for access to its wares.
Bankers complain that these mechanisms are less legally gold-plated than the existing passport regime. But they still provide a clear way to trade between two jurisdictions with essentially identical regulation.
Rather than loading higher financial services charges on to customers by immediately Balkanising Europe’s largest capital market, UK-based banks should anyway be making it easy for clients to continue dealing in London. There is no first-mover advantage in shuffling people and capital round the continent. Indeed, those who go earliest may become uncompetitive in terms of cost.
Whatever ultimately happens to bank balance sheets and businesses, those changes should properly play out when the terms of departure are clearer. European centres may secure a bigger slice of the business; London’s will shrink if it loses competitiveness. Like many an incumbent, Mr Blankfein seems pessimistic about these opportunities. There’s an air of unfinished political business about his Twitter feed. On Thursday, he messaged that so many CEOs had doubts about Brexit that it might require Britain to have a second popular vote. Remembering last time, Remain supporters may wince.
