Is the City of London going to hell in a Brexit handcart? If you believe so, you might point to the growls from the bankers in Davos about shifting jobs to the continent. We could move 1,000 roles, says HSBC, with Paris the main beneficiary. Same figure for us, replies UBS, but possibly Frankfurt and Madrid. Meanwhile, Goldman Sachs is stalling on its plan to expand in London.
On the other hand, here’s Jes Staley, chief executive of Barclays, breathing easily: “I don’t believe that the financial centre of Europe will leave the City of London. There are all sorts of reasons why I think the UK will continue to be the financial lungs for Europe.”
The reality, one suspects, is that these positions are not as far apart as they seem. Everybody is trying to anticipate the outcome of the Brexit negotiations but, in the absence of facts, the bankers’ statements are a cocktail of contingency planning and hazy guesswork.
What is plainly true is that, if banks and other financial firms are legally bound to conduct certain types of business in the eurozone, that is where they will shift the relevant roles. That is what HSBC and UBS are primarily talking about. Of course, the banks – like UK carmakers – have an incentive to frighten the government with large numbers to try to protect their interests during the negotiations. But a thousand jobs here, a thousand there? Yes, that seems quite possible. It’s a very big industry.
Yet the hell-in-a-handcart question is different. It’s about whether the loss of those jobs would herald the slow decline of the City, with business relentlessly leaking away over the years. That, as Staley suggests, remains hard to believe.
First, the banks would prefer to move as few posts as possible. Relocation is a hassle and UK regulators and politicians are familiar beasts. Second, the bankers probably aren’t making it up when they say the rest of the EU’s interests would not be served by upending the City. There isn’t an easy alternative financial capital and a fragmented collection of centres implies expense, to be paid in higher costs by European companies. That point, plus the risks to financial stability, may be gaining ground in the EU.
So is a third: that New York could be the biggest beneficiary of a sudden shift in the financial landscape. Returns on capital for banks are currently far fatter in the US than in the eurozone. So don’t assume US banks would rush to Frankfurt. Their US boards may prefer the Trumpist option of reinvesting at home.
To repeat, everything hinges on the new trading arrangements between the UK and the EU – and some form of standstill agreement, which allows adjustment to happen over time, could be the critical protection that the City requires. In the meantime, here’s a private pointer from one senior banker: watch the property markets. Tales of relocation become solid only when banks commit to spending serious sums on flashy new premises. And, if a large continental bank were to run against the general chatter and order a sizeable chunk of office space in London, that would be very significant.
Time for a big tobacco pay filter
It is a poor state of affairs that so many fund managers, especially in the US, can’t be bothered to think for themselves and instead rely on third parties to advise them on how to vote at companies’ annual meetings. But it is also true that few shareholder rebellions, at least on boardroom pay, gain momentum unless such proxy voting agencies back them.
That is why Imperial Brands, as Imperial Tobacco calls itself these days, will be alarmed that ISS has come out against its proposed pay policy. The fag firm had been delighted that Glass Lewis, another proxy agency, supported the proposed hike in chief executive Alison Cooper’s maximum pay package to £8.5m. Now ISS, which carries greater clout, is in the opposition camp.
ISS’s reasoning is sound. First, the agency observes that Imperial can’t seem to stop fiddling. This is the second time in three years that it wants to increase executives’ variable pay. That is not how the game is meant to be played; rather, companies are supposed to get a policy approved and then let it run for three years.
Second, ISS agrees with a point made here a couple of days ago: Imperial is playing the tired and discredited “benchmarking” card. It thinks Cooper, who earned £5.5m last year, needs a rise just because bosses of other companies with similar stock-market valuations can get even more. But if all companies take that view when their shares have outperformed (and never when they have underperformed), inflation becomes baked into the system.
Common sense ought to prevail. Cooper can earn £7.1m a year under the current policy. She owns shares in Imperial worth £6.5m and has unvested performance-related awards worth up to £12m. That ought to be sufficient motivation to try hard. Imperial’s proposal is a shabby try-on that deserves to fail, as a few fund managers who do think for themselves have been saying in private. The intervention of ISS makes the vote on 1 February interesting.
An honest departure
“Succession processes are challenging for everyone involved and, unfortunately, it is rare that all those involved stay with the company,” says Sir Andrew Witty, chief executive of GlaxoSmithKline. At least that’s honest: Abbas Hussain, head of Global Pharmaceuticals (and brother of former England cricket captain Nasser), is departing because he lost out to Emma Walmsley in the race to succeed Witty. Hussain, 52, can be confident of landing a big job elsewhere. Top marks for sparing us the usual guff about leaving to pursue other interests.