May 19, 2015 / 9:49 AM / in 2 years

Deutsche heads the queue of banks prepping for 'Brexit'

FRANKFURT/LONDON (Reuters) - Deutsche Bank is considering cutting its UK operations should the country pull out of the European Union and an industry lobby group said several other banks are mothballing investments until the outcome of Britain’s EU referendum is known.

A Deutsche Bank office is reflected in a puddle in Hanau, Germany, in this April 27, 2015 file picture. REUTERS/Kai Pfaffenbach/Files

Prime Minister David Cameron has promised to renegotiate Britain’s relationship with the EU and then hold a vote by the end of 2017 on whether to stay in the bloc or leave.

Deutsche (DBKGn.DE), the euro zone’s second-largest bank by assets, has almost 9,000 staff in Britain. It has formed a working group to consider moving some operations to Germany or elsewhere in the euro zone in case of a “Brexit”, a spokeswoman for the bank said.

It is not the only one to rethink operations, according to the British Bankers’ Association, with many banks also hurting from a UK bank levy that applies a tax on assets of their UK businesses and which was increased for an eighth time in March.

“Some banks have recently moved operations and jobs out of the UK due to punitive hikes in bank taxes. Other banks have deferred decisions about whether to invest in Britain until after the referendum,” said BBA Chief Executive Anthony Browne.

Industry sources said yet more banks from Europe, the United States and Asia are stepping up their contingency planning, which could include moving more of their trading operations, such as repo desks, to Dublin or elsewhere.

The BBA has commissioned former financial regulator Sir Hector Sants to review Britain’s competitiveness on behalf of the industry and report recommendations to the government in the autumn.

Many international banks use the UK to gain access to the single market and as a base from which to sell financial products and services across the region. The threat of Britain leaving the EU could prompt them to rethink that structure.

Goldman Sachs, JPMorgan, Bank of America Merrill Lynch and Morgan Stanley said they had not made any formal contingency plans for an EU departure but industry sources said banks were almost certainly considering the implications of ‘Brexit’ privately.

“I’d be amazed if every bank doesn’t at least have a working paper discussion on it as it would simply be remiss not to,” said one senior banker who sits on a committee overseeing aspects of the bank’s domicile, speaking on condition of anonymity.

“However, I‘m not sure its really just a ‘Brexit’ issue. UK banking regulation is onerous, it’s more about cost efficiency, capital efficiency, the UK bank tax - people are confusing issues.”

LONDON

Britain has built up its position as one of the world’s leading financial services centres since the late 1970s when an era of light-touch regulation turned London’s City financial district, and rival hub Canary Wharf, into 24-hour marketplaces strategically located between Asia and America.

International banks have continued to flock to London despite a string of setbacks, including Black Wednesday, opting out of the euro and the global financial crash, and the UK capital has seen off challenges from Frankfurt and Paris to be seen as Europe’s pre-eminent venue for financial services.

But that status now looks in jeopardy.

“It’s in London’s interest to keep us here. Our people like living here. There’s good infrastructure, good schools, good laws. It’s good for the economy and subsidiary businesses to have the financial sector in London,” said another senior banker who spoke on condition of anonymity.

“There are obvious reasons why we think it’s good that Britain stays in the EU. The idea you can finance Europe from a country that’s not in Europe seems to us a stretch.”

Deutsche Bank’s working group - comprising strategy, risk, UK management and research executives - will examine different Brexit scenarios and their implications for the bank’s large business in Britain, the spokeswoman said.

“Banks will be looking for sure at all the different scenarios, from a trading, hedging, forex point of view,” said a third senior banker, speaking on condition of anonymity.

Banks have done similar contingency planning in the past, the banker said, examining various locations such as Frankfurt, Paris and Dublin but ultimately most concluded that moving was not viable due to costs and the difficulty in servicing clients.

CLARITY

Bank of England Governor Mark Carney has called on the British government to provide clarity on how it will proceed with the referendum.

Cameron is confident his plan to hold a European Union membership referendum will ultimately give firms more certainty, his spokesman said on Tuesday.

HSBC Chairman Douglas Flint said that it would be an advantage for Britain to stay in Europe.

“More stability and certainty is better for economic progress, because people can make decisions if they can foresee what the framework of policy is going to be,” Flint told Reuters last week.

Europe’s largest bank is also reviewing whether it should move its headquarters from London and has said it would make its decision in a few months.

Other senior members of Europe’s financial services industry believe that Brussels could offer concessions to Britain to reassure “want-away” banks and Cameron that he can secure a ‘yes’ vote.

“I think it is in the interests of Brussels and Germany to be constructive with Britain. They know the EU is stronger with Britain in it,” Neil Dwane, Europe CIO, Equity, at Frankfurt-based Allianz Global Investors, said.

Additional reporting by William James, Steve Slater and Sinead Cruise,; Editing by Giles Elgood, David Stamp and Sophie Walker

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