Following indications that banks Nomura and Daiwa, Goldman Sachs and Morgan Stanley are all planning moving EU operations to Frankfurt, the city of London has come under much scrutiny over the validity of its position as Europe’s (if not the world’s) financial centre.
One thing that Brexit does guarantee for British businesses is uncertainty. Business leaders, employees and investors all have very little idea of what to predict over the next couple of years as some serious political changes take place. As a result, investors in general are highly apprehensive about providing capital for British businesses. As a result, it is likely that business growth will slow down massively (UK growth has been revised slightly down, from 1.5% to 1.4%). This results in fewer opportunities for banks in the city, and, for some, is enough to make them want to leave. However, I think that CEOs with this attitude are rather missing the po
London has consistently been one of the most important financial hubs in the world. As a result, the British education system is a breeding ground for future financial services employees. This is a culture that very few, if any, other nations have, and means that employers in the city are spoilt for choice when it comes to satisfying their human capital requirements. London isn’t quite unique in this sense, but it is superior to other alternatives.
Furthermore, the physical infrastructure that wires London in to the global economy has also developed considerably beyond what is in place in other ‘competing’ nations. For example, superfast Wi-Fi cables as used by exchanges and high frequency traders link US and British exchanges across the Atlantic. The further away trading desks move from these hotspots, the slower their operations become.
On the other hand, the fact that American powerhouses such as Goldman Sachs and Morgan Stanley are even talking about moving away is problematic in itself. This is because, to an extent, business moves with them. Companies wishing to do business with these banks will find it operationally more convenient to also relocate – in order to stay competitive, other banks will have to follow suit.
However, this problem may be less significant given the technologically advanced world we live in now – you don’t have to be in the same country to do business with somebody. Therefore, there probably isn’t really a strong reason to even move away from London in the first place – if you need to do business abroad, you can still do it from London, provided that Brexit pans out in such a way as to allow this to happen.
In conclusion, London is still obviously a serious financial powerhouse. However, it is clear that whether or not it continues to be so is almost entirely dependent on the final results of the Brexit negotiations taking place over the next couple of years.