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May's Brexit plan puts new pressure on banks to consider move, say lobby groups

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May's Brexit plan puts new pressure on banks to consider move, say lobby groups

British Prime Minister Theresa May's announcement that the U.K. plans to quit the European Union's single market by March 2019 will pile pressure on multinational banks to accelerate planning for the future of their U.K. operations, according to European lobby groups courting the business of London-based banks.

"Due to the feedback we got from our members, we think that the already ongoing discussions about moving European Economic Area-passport services or business lines are speeding up and that decision will be taken in the first quarter of 2017, especially by some non-EU banks currently using London as the hub for the European Union," said Oliver Wagner, managing director of the Association of Foreign Banks in Germany.

"Financial service providers relying on EU passporting will need to have their house in order once the ... two-year negotiation period [that begins when Britain triggers Article 50 of the Lisbon Treaty] is up," said Eric Menges, CEO of Frankfurt's inward investment agency, FrankfurtRheinMain GmbH.

"So whoever does not have an EU license in place yet would from my point of view be well-advised to put in a call to Germany's [bank regulator] Bafin as soon as possible," he added.

It remains unclear if financial services firms will retain "passporting" — the right to sell products and services into Europe from their London bases — if Britain leaves the single market. However, May hinted in a landmark address Jan. 17 that her government might secure a deal for financial services that preserves "elements of current single market arrangements."

Walter Peters, president of the Association of German Banks, said in a statement Jan. 18 that the loss of passporting rights by institutions based in the U.K. was "inevitable."

A representative for the French Banking Federation, who declined to be named for compliance reasons, said that although it had not received any contacts from banks since the speech, it expected to see more foreign banks coming to Paris.

The Irish Central Bank has received "enquiries and interest from a significant number of firms," according to spokeswoman Katie Philpott. The Central Bank Commission has approved an increase in staff of 200 people for 2017, of whom 28 will address "specific Brexit-related new business needs within existing divisions."

The European Banking Federation said it was waiting for Article 50 to be triggered to assess the effect on its members. The Dutch Banking Association said it had yet to hear from members that were planning on moving activities out of London.

Simon Lewis, CEO of the Association for Financial Markets in Europe, a lobby group, said May's clarity on the U.K. government's objectives was welcome, in particular the fact that she acknowledged the importance of an adjustment period to limit the disruption to Europe's financial services sector.

Only a handful of major banks — and only ones with existing subsidiaries or bases in Europe — have so far gone public with possible post-Brexit plans.

"With Brexit, we will have to [move jobs away from London]. The question is how many," UBS Group AG's investment bank president, Andrea Orcel, told Bloomberg News on Jan. 18. "It will very much depend on the agreement that the U.K. will reach with the EU. But yes, we will have to move bankers," he added, noting Frankfurt and Spain as possible locations for expansion.

"We can't just be optimistic," Orcel said. "So if we anticipate the worst, we anticipate a de minimis agreement between the U.K. and the EU, we anticipate that there won't be a transitory period, and such a transformation to execute takes a year and a half to two, so you are almost saying that the moment the U.K. invokes Article 50, we need to be in execution to move whatever we need to move to another jurisdiction."

UBS CEO Sergio Ermotti said in a separate interview with Bloomberg that the British government's decision to leave the EU single market was "not a surprise."

"We are clearly preparing for options, we have a couple of options. We have existing business in continental Europe and we will decide how to best leverage those capabilities depending how those things play out," Ermotti said. He expected UBS to have a clearer position at the beginning of 2018.

On Jan. 17, HSBC Holdings Plc CEO Stuart Gulliver estimated that trading operations representing around 20% of its London investment bank's revenue might shift to Paris when the U.K. leaves the single market. Rival banks that did not have continental subsidiaries like HSBC does would "have to make decisions quickly," he warned in an interview on the sidelines of the World Economic Forum in Davos, Switzerland.

In September 2016, Credit Suisse Group AG CEO Tidjane Thiam said the loss of EU passporting rights could affect up to one-fifth of the volume in the bank's London operations.

Representatives for Morgan Stanley, Barclays Plc and Deutsche Bank AG all declined to comment when asked by S&P Global Market Intelligence if May's announcement had impacted their outlook for their London operations.