Britain votes to leave the EU, but will financiers leave London?
Before the Brexit vote a lot of companies said they might leave Great Britain if the referendum won out. It did, but now these companies are saying, "not so fast."
Among those not wishing to Brexit in a hurry was JPMorgan Chase (JPM) CEO Jamie Dimon, who told his staff just three weeks ago that he could move an undisclosed number of the bank's 16,000 employees out of Britain if the country voted to exit the EU. But after the results of Thursday's vote, Dimon took a more temperate tone, saying that the bank would "maintain a large presence in London."
And Dimon wasn't the only CEO to try to influence the election. American International Group (AIG) CEO Peter Hancock had said he might move the company's London-based European hub to one of the EU nations if English voters chose to leave. He hasn't yet said whether he would make good on this threat.
But a host of London-based insurers don't seem too worried. Lloyds of London Chairman John Nelson said in a statement after the vote that he was "confident" that the 300-plus-year-old specialist insurance market would "stay at the center of the global specialist insurance and reinsurance sector."
Striking a note of confidence amid the doom and gloom, Nelson said that "for the next two years our business is unchanged."
"Lloyds has a well-prepared contingency plan in place and Lloyds will be fully equipped to operate in the new environment," he predicted.
Investment banker Morgan Stanley (MS) was also rumored to be packing its moneybags and taking 2,000 people from London to either Dublin or Frankfurt. But that rumor has been denied, with the company saying it has "no immediate plans."
U.K. insurers have rallied around the flag, even if it flies alone. "The U.K. insurance market and long-term savings industry is strong," said Huw Evans, director general of the Association of British Insurers, who warned that everyone should "avoid hasty decisions."
That's also the advice of two of the world's largest insurance brokers and consulting firms, Aon and Marsh, which advise many of the world's biggest companies.
They said in reports to clients that Brexit will take two years, so financial firms should have plenty of time to react to what's actually happening. The process will involve complex negotiations between Great Britain and the EU in a lengthy split, which could be very unfriendly except, that like many divorces, each party will still need the other financially.
As Aon puts it, admittedly the future is a "leap in the dark," since Britain is the first country to exit the EU. But other non-EU countries still have engagements with it, including Iceland, Norway, Switzerland and Turkey, which could serve as a model for the future.
There are relationships similar to being a member of the EU that Britain could still carry on, such as becoming part of the European Economic Area, said Marsh, or entering into a treaty with the EU, or even a "tariff-free trade agreement."
London's financial district, dubbed "The City," is the most likely area to be affected by Brexit, because banks and others might have to set up legal entities in other EU countries in order to operate. In that case, people would have to be moved.
But would London become a ghost town? That seems unlikely. One reason, Aon said, is the natural enmity between Germany and France. Britain was the de facto referee in their disputes, so moving to one or the other, such as a city like Frankfurt or Paris, could cause more friction that just staying in London.
The Bank of England is another good reason to stay put, as it has already developed contingency plans for dealing with Brexit. "It has sufficient funds to operate in the event of turbulence," said Marsh.
If there is a move away from London, the likely choice would be low-tax Dublin, and, depending on how negotiations proceed with the EU, there might be a slow migration in that direction.
But for now the world, Great Britain, London and the financial markets, are in a wait-and-see mode, except, of course, for their gyrating stock markets.