Career-minded investment bankers in Europe could see the writing on the wall way back in 2016 when the U.K. voted to leave the European Union. Their industry, and their careers, were heading for change even if the City of London managed to hang on to its dominance as a post-Brexit financial center. But what many were unlikely to have foreseen is how big the shakeup of the status quo would be, with U.S. investment banks further increasing their influence over talent pools as a once-cozy community scatters across myriad cities.
Analysts and market players are predicting that Brexit will likely trigger a war for talent across financial centers in continental Europe, pitting home-grown EMEA investment banks against heftier U.S. competitors.
In aggregate, more than 7,500 financial services jobs and £1.2 trillion worth of assets are set to leave the U.K. by the end of the Brexit transition period Dec. 31, EY consultants said in an October report.
That leaves other European financial centers braced for change.
Frankfurt, for example, may become a larger base for Citigroup Inc., according to analysts at equities research house Kalkine, while JPMorgan Chase & Co. recently decided to move assets worth nearly $230 billion from the U.K. to its division in the German city by the end of 2020. The planned asset transfer will make JPMorgan the sixth-largest lender in Germany, The Times of London estimated in a Sept. 24 report.
JPMorgan is also planning to purchase a building in central Paris, where it has 260 employees, to accommodate 450 additional staff, the Kalkine analysts added in an emailed statement. They also cited Bank of America Corp., which is planning to shift 400 jobs to Paris and other European cities this year.
The talent war has already started, Hubertus Väth, managing director of Frankfurt Main Finance eV, a membership organization promoting the German city as a financial center, said in an interview. He said that in recent conversations with contacts at financial institutions in Frankfurt, "all of them tell me stories about where key talent has been poached [and] they had lost key people to competitors."
"[W]e suddenly need trading capacity, compliance people, finance people, M&A bankers," Kristine Braden, head of Citigroup's post-Brexit hub, told a conference hosted by Handelsblatt in September.
"It's amazing how much competition there is right now in the talent pool," the Frankfurt-based executive added.
Stoking that competition are the big U.S. banks — Goldman Sachs Group Inc., JPMorgan, Morgan Stanley, Bank of America and Citigroup — which have higher earning capacity enabling them to offer more generous pay and greater access to work-enhancing technology than many local institutions, James Ridd, Americas CEO of London-based recruitment firm Hanover Search Group, said in an interview.
That's a challenge for European banks. Big U.S. banks have already proven to be more attractive than their European peers for job-seekers for a number of reasons, Andrea Vismara, CEO of Italian investment bank Equita, told a September banking webcast hosted by Financial News, citing not only more opportunities to work with a greater range of clients and more access to cutting-edge technology to keep skills sharp. However, arguably the greatest attraction is higher pay, Vismara said.
In pre-Brexit London, the pay gap between U.S. and European banks has been pronounced, according to the latest available data from remuneration benchmarking website Emolument. In terms of annual base salaries, for example, a vice president of a U.S. bank working in the U.K. on average earned a base salary of £135,000 in 2018, compared to a base salary of £125,000 for the equivalent U.K. post for a European bank, and with a bonus two times higher of £110,000, according to Emolument's survey of 6,200 bankers.
The gap did not appear overnight, according to Alison Harding-Jones, head of EMEA M&A at Citigroup. "It's been obvious to any practitioner in this market that the U.S. banks have taken share across a number of products in Europe since the financial crisis [of 2008/09] and have become stronger," she said during the same panel during the Financial News webcast.
This landscape is not lost on competitive investment bankers, she said. "They want to win. They want to be working on the best platform. If they are sitting on one of the European bank platforms and realize they are not able to lend as much, while their colleagues, who they rely on to work together, are leaving, it's very natural [they would want to go as well]."
"Size is a powerful mechanism to attract talent and to attract know-how," Stefano Caselli, a finance professor at Italy's Bocconi University, added during the same webcast.
But while the allure of U.S. banks remains strong, Ridd said some factors work in European banks' favor, particularly those with well-respected brands but for other reasons too. "The decisions about the business are made in Europe, by people who understand the region. That goes a long way," he said. From a people perspective, culturally, that is an easier fit for domestic investment bankers, he said.
U.S. and European bank competition aside, another big change investment bankers now face is the disappearance of London as the main hub for job-seekers.
"When I was starting 30 years ago, if you wanted to work in investment banking, you had to move to London," Vismara said in an interview. "You became part of a large investment banking community which offered a lot of possibilities to move from one bank to another. After Brexit this whole thing will be more fragmented." Post-Brexit, London is unlikely to be the magnet it once was, Vismara said.
That adds another greater choice in the war on talent as job-seeking investment bankers are likely to have greater mobility and choice of attractive financial centers from which to work. In a post-coronavirus economy in which bonuses may be squeezed, job-seekers may favor other cities over London, which is the 19th most-expensive city to live in globally according to a 2020 cost of living ranking from consulting firm Mercer, compared with Paris in 50th place, and Amsterdam in 76th place.
But investment banking's fragmentation also may bring another layer of complexity in terms of differing hiring jurisdictions, and their HR and pay practices. As it stands now, remuneration packages can vary widely across continental Europe. EU members, for example, cap bankers' bonuses so that they cannot be higher than 100% of fixed salaries. The amount can be doubled if shareholders approve but that still keeps pay at EU-based banks lower than elsewhere.
Some EU member states have imposed even harsher bonus rules than the bloc's minimum, as is the case in the Netherlands, which has a bonus cap of 20% of fixed salaries.
As the case of ING Groep NV's former CEO shows, navigating continental Europe's complexities need not be a deterrent to moving from one financial center to another.
Starting this month, Ralph Hamers is looking at a substantial pay bump having left the Dutch bank to become CEO at Zurich, Switzerland-bank UBS Group AG. In 2018, Hamers earned €1.75 million, which was 7x lower than the compensation of outgoing UBS CEO Sergio Ermotti, who received CHF13.8 million, the Financial Times estimated in February when the appointment of Hamers was announced.