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‘Brexit’ Imperils London’s Claim as Banker to the Planet


Wednesday 13 December 2017, by Carlos San Juan

From a skyscraper in Canary Wharf, the once-bustling cluster of docks transformed into a global banking center, traders at Citigroup’s regional headquarters move unfathomable sums of money around the planet. They are exploiting London’s unrivaled connections to the intricate plumbing of the international financial system.

Now the flow of money is in doubt, imperiling London’s fortunes.

Many of the transactions Citigroup oversees here are dependent on Britain’s inclusion in the European Union. Italian banks tap London’s vast pools of money to strengthen tattered balance sheets. German manufacturers borrow funds for expansion. Swiss money managers ply their fortunes. Citigroup and other global banks manage much of this activity, executing trades, and ensuring that money lands where it is supposed to, leaning heavily on their London operations.

‘Brexit’ Imperils London’s Claim as Banker to the Planet. GOODMANMAY NYT 11, 2017

In March, Prime Minister Theresa May set in motion Britain’s pending divorce from the European Union, starting talks with Europe to resolve future dealings across the English Channel. The negotiations come with a two-year deadline. If no agreement is struck — an outcome that cannot be discounted — Britain’s relationship with the European marketplace would be thrown into chaos.

That prospect was seemingly enhanced this week as France elected as its next president, Emmanuel Macron, who has vowed to ensure that Britain emerges the weaker from negotiations. He has promised to fight any agreement preserving access to Europe for London-based financial services companies, while openly calling for bankers to decamp for Paris.

“It’s the British who will lose the most,” Mr. Macron said in a pre-election interview with the global affairs magazine Monocle. “The British are making a serious mistake over the long term.”

Continue reading the main story If a rupture across the channel results, global banks like Citi stand to feel significant consequences.

Somewhere between one-fifth and one-third of London’s financial undertakings now involve clients based in Europe. Much of this business is dependent on so-called passports that give financial firms in one European Union nation permission to operate in the others. Free of a deal preserving the essentials of passport rights, many of these trades would be effectively illegal. The rules and regulatory proclivities of 27 remaining European Union nations would have to be satisfied.

“I wouldn’t even be able to service some clients, theoretically, once the U.K. exits,” says Jerome Kemp, a New Yorker who is Citi’s global head of futures, clearing and collateral at its London headquarters. “If the client driving the order is sitting in the European Union, then we’ve got a problem.”

How ‘Brexit’ Could Alter London, the World’s Banker A large piece of London’s banking business depends on its inclusion in the European Union.

Brexit, as it is known, has jeopardized London’s status as banker to the planet. London will surely retain credentials as one of the world’s most important financial centers. Yet it is likely to surrender stature to European competitors exploiting Brexit as an opportunity to capture spoils. It risks losing ground in its obsessive rivalry with New York.

On a recent afternoon at Citigroup’s headquarters, traders sit at banks of computer screens watching prices in markets scattered from Shanghai to São Paulo. One trader monitors the price of crude oil, eyeing a deal for an American refinery in Brazil. Another seeks to divine how stock markets in South Africa and Indonesia will react to higher American interest rates.

A Swedish trader helps a money manager in Paris place a complicated bet that German government bonds will fall.

“There’s about 10 questions that immediately come to mind as to whether we could execute that trade in London after Brexit,” Mr. Kemp says.

Those questions stand to become more abundant as the European authorities mull whether to require that so-called clearing — settling up the money — on trades involving the euro currency take place within the European Union.

Clearing is a crucial part of the work Mr. Kemp’s team handles in London. Trades of derivatives worth about 850 billion euros a day ($928 billion) are now cleared daily in London, or roughly three-fourths of the total for the globe.

Like every bank with a regional headquarters in London, Citi cannot just wait in the hopes that politicians will strike a deal preserving its access to Europe. Banks are already configuring plans to move significant numbers of people to other financial centers within the European Union, ensuring that trading can continue without a hitch after Brexit is complete.

This is a historic reversal for a city that has for centuries functioned as a central artery for finance.

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