Leaving London: voices from the financial front lines of Brexit

In the 33 months since the UK voted to leave the EU, thousands of financial services companies with European hubs in London have been assessing their options.

Many of them have concluded that the potential disruption of Brexit means they need to expand elsewhere in the EU, anticipating the loss of passporting rights that permit them to access clients across Europe.

Financial Times research published last week found that the City of London’s biggest international banks have moved fewer than 1,500 jobs from the UK in the run-up to Brexit, far fewer than originally estimated in many quarters.

While relatively few people have shifted so far, rivals to London’s crown as Europe’s financial centre have been jostling to attract more Brexit escapers. Yet even the current trickle of new arrivals is stirring concern about upward pressure on property prices and extra competition for places at international schools.

The FT has spoken to people in six of the cities affected by these moves — Paris, Frankfurt, Dublin, Amsterdam, Milan and Madrid — to hear how Brexit is playing out.

Paris

Stefano Petricca remembers where he was when he realised that his fledgling London-based asset manager would have to pack its bags and head to the continent.

“I was watching the referendum on local TV . . . I immediately understood that it was going the wrong way, immediately,” Mr Petricca said in an interview with the Financial Times in Paris while setting up his new life.

The 53-year-old Italian native is the founder and chief executive of Petricca & Co Capital, a €700m asset manager, which he set up in London four years ago.

To guard against the potential disruption of Brexit, he started planning a move to the continent as soon as the referendum result landed. He fired a handful of staff and uprooted his life, writing off the cost of obtaining UK licences.

He chose Paris because of its top cultural attractions, as well as its established financial market infrastructure and its close travel links to London.

His move to the French capital has been mirrored at larger banks and asset managers, with Citigroup, Bank of America, JPMorgan Chase, BlackRock and a host of others shifting operations there. They were lured to Paris in part by a low-tax offer made by French President Emmanuel Macron.

I had to start to prepare lawyers and accountants to move one year ago

“We have seen an acceleration of teams being moved to Paris . . . there is still uncertainty and people are still waiting, but the plans are there and the first teams have been put in place,” said Arnaud de Bresson, head of Paris Europlace, a French business lobby group that estimates some 20,000 jobs are shifting there from London.

The moves are pushing up property prices and fuelling competition for scarce places at the city’s best international schools. “We were able to increase the number of school places in Paris by 1,000 to close to 11,500,” said Charline Avenel, who administers four major school districts around Paris, including Versailles.

“The planning began two years ago, after the referendum,” said Ms Avenel, pointing to a new school with an international section opening at Courbevoie near the business district of La Défense that has guaranteed school places to the European Banking Authority’s staff as it moves from London to Paris.

Prime office space in the centre of Paris is also already scarce, with Brexit only adding to the pressure. “In the most sought after areas of Paris the vacancy rates are at a record low of 1.7 per cent,” said Philippe Perello, a Paris partner with Knight Frank.

The same is true for high-end apartments. “There is a scarcity in the market . . . in the classic arrondissements, like the 16th, with a good stock of Haussmannian apartments, some with gardens, and close to the good schools, prices have jumped by over 5 per cent since Brexit,” said Marie-Hélène Lundgreen, who works at Belles Demeures de France specialising in luxury real estate. She has been inundated recently with requests from bankers moving from London to Paris.

Mr Petricca is himself searching for an apartment in Paris and although he “prays for a second referendum” his own move is now set in stone. “You know why; because I had to start to prepare lawyers and accountants to move one year ago.”

David Keohane in Paris

Frankfurt

In the coffee shops and bars of Frankfurt’s financial district that surrounds the city’s old opera house, talk of Brexit has been drowned out by a different, yet equally contested topic: the merger talks between Deutsche Bank and Commerzbank.

Both banks have their headquarters in the German city, and they are expected to sack tens of thousands of employees if the deal goes ahead.

In the long run, Brexit is likely to impact Frankfurt more fundamentally than Deutsche’s potential absorption of Commerzbank. But for now, little has changed in the sleepy city of 730,000 people.

Since the Brexit vote in 2016, more than 45 financial institutions have set up or beefed up their presence in Germany, the vast majority of them choosing Frankfurt — including the likes of Goldman Sachs, JPMorgan and Standard Chartered.

“Frankfurt is the first choice for Brexit banks,” said Gertrud Traud, chief economist of Frankfurt based Helaba, a state-owned bank that is tracking the process closely.

The total assets banks hold in the city is expected to rise by more than a fifth this year as they relocate several hundreds of billions of euros from London. The clearing volume of euro-denominated derivatives such as interest rate swaps — close to zero when Britain voted to leave the EU — jumped more than tenfold last year alone.

For now lenders are only moving “the bare minimum” of jobs from London to Frankfurt that they need to satisfy regulators, said Joachim Wuermeling, a Bundesbank board member. “There will be a second wave, but at the moment it is very difficult to assess how big it will be.” Most banks have been hiring locally for any extra jobs in Frankfurt.

“We have a number of employees ready to move instantly in a hard Brexit situation, but so far almost no one has made the plunge,” said a Frankfurt-based employee at a large US investment bank.

Germany’s financial capital, which lack’s London’s global buzz or Paris’ cultural flair, has done little to woo banks. Mayor Peter Feldmann, a left-of-centre Social Democrat, avoids the sector. The federal government in Berlin has, however, promised to make it easier for banks to fire highly paid senior staff.

While partly driven by Brexit, the boom in Frankfurt’s commercial and residential real estate market is mainly caused by low interest rates and a strong local economy outside of banking.

Residential rents are up 58 per cent since 2014, and commercial rents for premium office space in prime locations were up 7.3 per cent last year alone, according to BNP Paribas Real Estate.

Expectations of tens of thousands of extra finance jobs have been scaled back. Helaba’s latest estimate is that by the end of next year, Brexit will have pushed the staff employed by foreign banks up by 2,000 to about 4,500.

Olaf Storbeck in Frankfurt

Dublin

Dublin was in the grip of acute financial crisis when Barry Mangan left the Irish capital for London a decade ago. By the time the JPMorgan Chase executive returned last year, the Irish capital was booming again and set for an influx of Brexit bankers.

Mr Mangan, who is in his mid-30s, is chief risk officer at JPMorgan’s payments unit in Dublin’s docklands financial centre. His own move was not directly linked to Brexit. But it came as concern grew that an influx of bankers would squeeze property and school spaces.

Data from IDA Ireland, the state investment agency, suggest Brexit-related projects will create more than 5,000 jobs in an already accelerating economy.

Although Mr Mangan had heard “horror stories” about Dublin’s hot housing market, he and his wife managed to buy a home after six months. “It took some time but nothing crazy,” he said.

Dozens of companies have made Dublin their EU hub as the UK prepares to leave the bloc, and this shows no sign of slowing down.

EY, the accountancy firm, reported that 28 financial services groups have committed to relocate staff or operations to Dublin since the 2016 referendum. Among them are Citigroup, Bank of America, Barclays, Legal & General and Axa.

More than 100 companies have sought Central Bank of Ireland authorisation to operate in the country and IDA Ireland said 70 new investments are linked directly to Brexit, many outside the financial sector.

Yet John McCartney, research director with estate agents Savills Ireland, said many companies are setting up in Dublin with only small teams. “ They’re finding out about the city, seeing how the land lies . . . If the need arises they will be in a position to scale up,” he said.

William Tighe, director with Dwellworks, a specialist international relocation agency, reported a “sustained uplift” in business because of Brexit, adding that the rise in “actionable relocations” has been in the thousands.

Places are scarce in Irish state schools, leaving many people to turn to fee-paying institutions. “We’re seeing more placements into private schools and the international schools as a result of these transferees coming in,” Mr Tighe said.

Rents are expensive, with prices in the swishest Dublin suburbs on a par with London or Paris. But the surging house price inflation that took hold after the crash has eased. Residential prices rose 5.6 per cent in the year to January, slowing from 11.8 per cent in the previous 12 months.

Mr Mangan is glad to be back in Dublin, saying non-Irish colleagues who have moved there are “generally very pleasantly surprised” at “how vibrant it is and how lively it is”.

Arthur Beesley in Dublin

Amsterdam

For Harm Bots, the new head of Royal Bank of Scotland’s expanded Amsterdam office, one of the best things about the Dutch city is its proximity to London.

“I can get up in Amsterdam and catch the 7 o’clock flight to London City and still be in the office by 8am, sometimes beating my colleagues who are commuting in London,” said Mr Bots, who recently returned to the city he left 14 years ago after stints in Tokyo, Kuala Lumpur and London.

Mr Bots, who is running RBS’s Dutch subsidiary NatWest Markets NV, is among the hundreds of bankers leaving the UK to work for new European entities, which have been set up so banks can continue servicing clients across the region after Brexit.

Many of those quitting the UK in the first wave of departures are like Mr Bots: foreign nationals from Europe returning to their native country.

The RBS executive, who lived in London for seven years until November, said he will miss its world-class culture. “I love London. It’s a fast city, and when I think about the events and exhibitions it’s great,” he said. “But the good news is I’m still often there. And the family can go back to see friends.”

Amsterdam’s enviable location and conveniently positioned international airport — seven minutes by train from the financial centre — are among its main selling points, making it well connect to other financial hubs such as Frankfurt, Madrid and Paris.

Despite its benefits, including the fact that English is widely spoken, Amsterdam is unlikely to become a hub for investment banking. One factor holding it back is the rule capping bankers’ bonuses at 20 per cent of fixed salary — in effect a tenth of what others earn elsewhere in the EU.

Nonetheless, several trading groups — including CBOE Europe and the London Stock Exchange’s Turquoise platform — have picked Amsterdam as their post-Brexit hub, as has Japanese bank MUFG.

Their expansion threatens to stoke inflation in already surging property prices. In 2017, the city was added to the UBS global real estate bubble index, and now ranks seventh after London and New York on the ratio of average property prices to income.

The Municipality of Amsterdam has responded by proposing a ban on new-build properties financed with buy-to-let mortgages, targeting landlords seeking to rent out apartments on sites such as Airbnb. But the measure also threatens to limit the supply of housing for workers moving to Amsterdam.

“The city is relatively full, there’s talk of a tourist tax,” said Clifford Abrahams, chief financial officer of ABN Amro. “ The housing market is already strained and people are worried about their kids getting on the housing ladder,” he added.

David Crow in London

Milan

Davide Serra, founder of a fast-growing $12bn investment company in London, is one of the most high-profile repatriates to Milan since the UK voted to leave the EU.

The 48-year-old left Milan at the age of 22 after winning a place on Warburg’s UK graduate trainee scheme and he never looked back. That is, until Brexit happened.

“I have contingency plans,” said Mr Serra. “I can move anyone into any major jurisdiction, depending on what Brexit turns out to be. I am hoping for the best but prepared for the worst.”

He said his decision to move with his wife and their four children to Milan from London was a personal one. For now, his Algebris business, which specialises in banking investments and makes a third of sales from Italian clients remains anchored in London with offices in New York, Milan, Luxembourg and Singapore.

Hefty tax breaks offered by the former Renzi government, of which Mr Serra was an outspoken financial supporter, have lured many Italian financiers back from London.

Mr Serra said a tax break was not his primary motivation. Instead, he was worried that he and his wife with their British passports and their UK-born and English-speaking children could both find themselves “cut off” from Britain and “find it harder to work across Europe in the future” because of Brexit.

“I want to make sure my kids are fully bicultural and not just bilingual,” he said. “London is the best city in the world — I am convinced London will prevail and London will fight back — but I also realised London is not going to be what is used to be.”

Italy has changed since he left. “Milan has become the true Italian capital,” he said. The “grey, dark, dirty and dangerous” northern city he recalls has been transformed since hosting the World’s Fair in 2015.

Qatari and Chinese money has poured into property developments, tourist numbers are higher than in Rome, new international schools have opened luring UK teachers with higher euro-denominated salaries. Crucially, it has also become the “gateway city” for Italy’s export-driven economy to access Europe and the world.

Mr Serra said this brings two advantages: “At an entrepreneurial level I get more contact with the real economy than I had in London, and there’s also a growing international Italian community who felt ill at ease with the Brexiters and have come to Milan.” All in all, the move back “has been very pleasant,” he said.

Still, he has not turned his back on the UK. Last year, he set up a Policy and Research Forum, signing up German former foreign minister Sigmar Gabriel, Denmark’s former prime minister Helle Thorning-Schmidt and Mr Renzi to debate and promote the values of the EU. The first two debates were in Milan and London.

Rachel Sanderson in Milan

Madrid

Sebastián Albella, head of Spain’s securities regulator, has a number of theories why the trickle of post-Brexit bankers moving to Madrid has been below expectations.

He blamed a sense of instability caused by the conflict in Catalonia and a lack of tax breaks for companies like those other countries have used to attract international banks looking to set up new EU hubs.

Still, he said that “the game is not over yet”, pointing to the arrival of bankers from Credit Suisse and a number of smaller institutions.

Madrid will be home to some of the 250 employees Credit Suisse is expected to move out of London, as the Swiss bank establishes an investment banking hub paired with its other main continental European base in Frankfurt.

Matthew Taylor, headmaster of King’s College in Madrid, said the English-language school is seeing many more enquiries “most notably since Christmas” from people with finance backgrounds engaging in contingency planning. He said more banks and multinationals are also asking if the school has space for students.

The impact has so far been limited, however, with only about 10 new students relocating from the UK for Brexit-related reasons. “There’s an equally large, if not greater, interest from people relocating from Venezuela,” he added.

Those who do move to Madrid will find a real estate market in full upswing, with prices higher than when the bubble popped during the 2008 financial crisis. Sale prices rose 17.2 per cent in Madrid in the year to January, according to Beatriz Toribio, head of research at real estate portal Fotocasa.

“We are seeing annual increases above 15 per cent in the central and prime districts and we’ve seen them since the end of 2017,” she said. “Madrid is going at a very high speed both in rental and in sale prices.”

Prices rose in rich as well as poor areas, with apartment sale prices jumping 13.4 per cent in well-heeled Salamanca and climbing more than 10 per cent in the nearby suburbs of Las Rozas and Majadahonda.

Housing sales to British buyers slumped in 2017, the year after the Brexit vote, but rebounded in 2018 as the exit date grew closer. British buyers accounted for 10,722 transactions in 2018, or almost 15 per cent of sales to foreign buyers, the largest market share.

While most were for second homes, some 2,500 were to people moving to Spain for work reasons, said Patricio Palomar Murillo, head of alternative investments at AIRE Partners. “What we’re primarily seeing is the arrival of executives, not that of less-qualified people who need to establish themselves,” Mr Palomar said.

Ian Mount in Madrid