Is the banking sector, after years in London, considering a move away? What might this mean for those bank stocks directly affected, and any banking sector etfs?
Major financial institutions in the UK consider making move to France
Some of the biggest banking institutions in the UK are now in the advanced stages of discussions to move their operations from London to Paris. The news was outlined by France’s leading financial regulator, Benoit de Juvigny. The regulator outlined that a number of large international banks had already begun the due diligence process necessary to set up subsidiary businesses in Paris – a costly and intensive scrutiny not to be taken lightly.
He further outlined that a number of other companies had begun making similar inquiries in the wake of Brexit and that he expects that such talks are happening in numerous other European capitals.
The regulator race
Financial centres throughout Europe including Frankfurt, Luxembourg and Amsterdam have welcomed the prospect of banks moving their operations from London when Brexit takes place. Newsnight notes that at least eight cities are actively seeking the business of financial businesses operating in the UK, including Dublin, Madrid, Bratislava and Vallarta. However, the danger in this competition for business is that regulators may seek to offer a better deal for such institutions through more lenient regulation – allowing banks to get away with conduct similar to that which caused the 2008 financial crisis. Benoit de Juvigny said that “the danger is the race that we could have a more lenient regulation with a more lenient regulator.”
He has called for European regulators to strictly adhere to regulatory standards designed to protect the European economy, even in light of this attractive opportunity.
Uncertainty
The reason behind the potential moves is that for a number of years, financial services companies based in the UK have been able to operate across Europe through what are known as “passporting rights”. However, if the UK leaves the EU, the scheme may be brought to an end, with no indication of a suitable replacement. It is this uncertainty that is forcing banks to create important contingency plans for the future.
It will be interesting to see how banking institutions in the UK make the decision to move their operations, if they decide to move at all.
Share Prices
Individual bank’s share prices will be influenced by rumours regarding potential location changes, but some more so than others. With firms the size of HSBC, relocation of certain offices will not be viewed as having a large impact. Other banks have more significant UK links, such as Lloyds, and their fragile share value might be impacted – even by moves away from other banks.
More lenient regulation may even see share prices boosted, as investors see more room for profits at the major banks.
In addition, a move away from London would be seen as a knock to the capital, and GBP forex pairs might see sterling suffer short term.
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