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Posted on 29 January 2017, 10:06 PM

Brexit and the Stock Market: Barclays leads the Exodus of Financials out of London

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Barclays, according to Reuters, is planning to move its EU headquarters to Dublin, as part of its preparations for confronting the challenges posed by Brexit. The bank, which is looking to more than double its staff count in the Irish capital, is already factoring in the eventuality of losing the so-called EU “passporting rights”. Passporting is an EU-wide scheme which makes the provision of financial services by firms authorised in the UK possible throughout the European Economic Area (EU and Switzerland), without administrative friction and transaction costs. The loss of access to the passporting privilege is made more likely by the determination of the government to take Britain not just out of the European Union, but also out of the European single market for goods and services.

A spokesman for Barclays announced: “We have made clear repeatedly that we will plan for a range of Brexit contingencies, including building greater capacity into our existing operations in Dublin.

"Identifying available office space is a necessary and predictable part of that contingency planning process," he added.

Barclays is only the latest in a string of announcements by financial institutions pondering office relocations in the event of a hard brexit, which leads to UK banks losing their passporting rights to trade on the continent. The Chief Executive of the British Banking Association (BBA, the trade association for banks in the UK) stated in the past that: "Most international banks now have project teams working out what operations they need to move to ensure they can continue serving customers, the date by which this must happen, and how best to do it." He further added that "their [the banks'] hands are quivering over the relocation button” and that smaller banks had already planned to quietly start relocating before the end of last year, while larger institutions were expected to follow suit in the first quarter of the year.

What Brown predicted last year seems already to be happening. Apart from Barclays, leading American investment bank Goldman Sachs is been among those actively planning a relocation, with up to 2,000 London jobs to be moved to other EU financial centres.

London is now suffering from the competition from Paris, Frankfurt and Luxembourg, among other cities. The head of France's financial regulator, Benoit de Juvigny, has said some of the UK's largest banks, as well as international investment banks with their EU headquarters in London, were already in "advanced" talks to move to Paris. Asset manager M&G is already preparing to shift its operations to Luxembourg, building up a whole new investment division in the Grand Duchy. M&G's move comes amid warnings that the real consequences of Brexit for the financial sector will only be felt in the medium term, when negotiation talks will be at an advanced stage, and that “most banks will move to Europe as the end of the Brexit process nears”.

Insurance giant Lloyd's of London is also considering moving operations to mainland Europe if passporting rights are not withheld in the course of article 50 negotiations. Prague is also rumoured to be a possible destination for British banks looking to move some of their EU operations to the continent.

It is hard to assess what the consequences of Brexit will be for financial stocks on the LSE. Investors, however, must assume that the situation is far from ideal if some amongst the heaviest listed stocks are mulling a move to another country. Barclays has lost 1.75p, or 0.75%, in Friday trading on the London Stock Exchange. The banking stock trades at 230.60, down from the open of 231.85. Its 52-week average is 121.10 – 240.20Gbp. The stock has a negative earnings per share ratio of -0.09, and a yearly return of 27.47%. Barclays' market capitalisation is GBP 39.117 billion.

 


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