How many London banking jobs will disappear after Brexit? Will it be 83,000 as predicted in the 'private report' from EY this week? Will it be up to 75,000, as predicted by Oliver Wyman? Or will it be far less under a "soft" Brexit?
A little-noticed podcast featuring Goldman Sachs' chief European economist Huw Pill, recorded last week, suggests the pain may be more rather than less.
In a conversation with Goldman's global head of communications, Pill said that while a hard Brexit in the sense of a reversion to World Trade Organization Rules seems self-defeating and unlikely, a soft Brexit in the sense of continued membership of the European single market in any form (including the EEA) looks equally unlikely. Pill didn't say so, but as the chart below from Deutsche Bank makes clear, this would mean a certain end to the existing-passporting regime that allows banks based in London to operate within the EU.
UK prime minister Theresa May's approach to Brexit seems to boil down to three things, said Pill: Legal separation from the EU, control over migration and an end to the European Court of Justice's jurisdiction over British courts. None of these are compatible with the single market's indivisible freedoms of goods, people, services, and capital. Nor does Pill think a customs union with the EU is particularly likely: this would necessitate the UK accepting the EU's edicts on trade negotiations with outside countries in Africa or Asia, something which runs entirely contrary to the Brexit ethos.
So what does Pill expect? He doesn't say exactly, just that: "The most likely outcome is a long, drawn out process where we try find an acceptable point to both sides in the space in between [hard and soft Brexit]. That's probably not going to be as soft as many people thought in the past."
This doesn't bode well for banks, which have been asking for clarity on the U.K. government's plans and a long transition period in which to implement them. Instead, Pill seems to expect a long transition period during which there is no clarity because negotiations are taking place. He doesn't say so, but banks are likely to use this period of fog to crystallize and implement contingency plans.
Following reports that Goldman is preparing to move jobs to Frankfurt, Goldman Sachs' CFO Harvey Schwartz said this week that Goldman is still in the contingency planning phase for Brexit and is in no rush to make changes to its European organization. UBS chairman Axel Weber said much the same on Wednesday. However, some banks are already making moves: Citi, for example, is shunting jobs to Dublin.
Pill's podcast is a timely reminder that Brexit negotiations are incredibly complex and that the inevitable triggering of Article 50 by the end of March is unlikely to relieve the uncertainty. Banks that want clarity are not going to get it, and with time they will respond accordingly.
Deutsche Bank's chart on the UK's negotiating position regarding financial services and Brexit