Monday 22 July 2019

Billions flooding out of London ahead of Brexit

No, prime minister: A London trader monitors financial data as UK Prime Minister Theresa May speaks ahead of the recent UK parliament Brexit deal vote. Photo: Bloomberg
No, prime minister: A London trader monitors financial data as UK Prime Minister Theresa May speaks ahead of the recent UK parliament Brexit deal vote. Photo: Bloomberg

Will Hadfield and Steven Arons

The UK parliament can't agree on how to leave the European Union, but many finance firms have already decided how much money to move out of the City of London - a shift that's seen by some as irreversible.

The big banks were among the first to plan to move assets out of London, with Frankfurt standing to benefit handsomely.

Five of the largest banks looking to serve continental European customers now intend to move €750bn of balance-sheet assets to Frankfurt, according to people familiar with the matter.

Deutsche Bank is taking the lead by repatriating at least €400bn, the people said, asking not to be identified divulging the company's plans.

JPMorgan Chase will move €200bn to the host city of the European Central Bank over the next year or two, twice as much as previously reported, a person familiar with the matter said.

Spokespeople for Deutsche Bank and JPMorgan declined to comment. The figures add detail to previous predictions from lobby groups about the capital flight to Frankfurt.

In the immediate aftermath of the Brexit referendum, banks assumed they could continue to provide services to continental clients simply by setting up legal entities in the remaining EU countries.

However, the ECB, the Bundesbank and Bafin - the German markets regulator - all demanded that continental subsidiaries hold sufficient resources, with the latter warning against 'letterbox' subsidiaries that contain little more than a postal address.

While the banks have mostly chosen Frankfurt, the trading venues and the algorithmic traders that provide much of their volumes have mostly gone to Amsterdam.

Trading venues need to be physically in the EU to guarantee that firms based in the trading bloc can access them after March 29.

CME Group is moving its BrokerTec market for short-term funding, Europe's largest, to Amsterdam from March 18.

This is in addition to the €200bn-a-day repo market, whose move was unveiled in November.

The firm is also moving its European government bond venue and its separate $15-billion-a-day EBS foreign-exchange forwards and swaps market to the city.

CME does not disclose volumes for bond trading outside the US. Many more trading venues have chosen to reproduce their London trading services on the continent.

Applicants to the Dutch markets regulator to operate a multilateral trading facility include London Stock Exchange Group Turquoise unit, TP ICAP, Tradeweb, MarketAxess Holdings and Bloomberg.

After Brexit, Cboe Global Markets's Amsterdam-based regulated market will handle all stocks listed in EU member states, with UK and Swiss equities remaining on the firm's London-based MTF.

After most trades are agreed, the clearing houses take over. London's three clearing houses dominate markets including energy and metals, but the firm most susceptible to losing business to Europe is LCH, a division of LSE that is home to more than 90pc of cleared trades of interest-rate swaps.

At the end of last year, Union Investment, Germany's third-biggest fund manager, became the first finance firm to announce that it would shut its existing swap positions at LCH and recreate them at Eurex Clearing in Frankfurt.

Although LCH has been granted a 12-month reprieve to continue clearing swaps for EU customers in the event of a no-deal Brexit, Union could be the first of many to make the move.

Bloomberg

Bloomberg

Also in Business