Brexit Is Driving Top Dealmakers Out of London and Into the EU
The new rules for the bankers who made London financial capital of Europe are still uncertain after Brexit, but one outcome is already clear: a stream of dealmakers across the English Channel.
While thousands of traders and salespeople have already made the move, the next wave is likely to include the high-flyers who advise on strategy, mergers and capital raising, say more than a dozen officials at global institutions.Goldman Sachs Group Inc., for one, is moving senior investment bankers out of London to the continent.
“I would expect that 3,000 to 4,000 more investment bankers, especially industry-focused specialists and debt and equity issuance advisers, will have to leave London and come back to Europe,” said Andreas Halin, founder of Global Mind Executive Search Consultants GmbH, a Frankfurt-based firm that specializes in the sector.
The prospect of losing a highly paid cadre of taxpayers is particularly bad news for the U.K., since it relies so much on financial services for revenue. The industry employs more than one million people, makes up about 7% of the economy, and accounts for more than a 10th of all tax revenue.
While a U.K.-EU trade deal was sealed in late December, talks on financial services are only just beginning — with no deadline for completion. EU officials must rule separately that British financial regulations and oversight are strong enough to create a level playing field. Thousands of jobs and more than $1 trillion of assets are alreadymoving to Europe.
Chaperones
For the dealmakers who will be on the move, the issue is one of access. Bankers in London can no longer directly pitch transactions or capital-raising operations to corporate clients on the continent. They require the involvement of a so-called chaperone — a colleague within the EU to make the first move to contact the client with a business idea.
To manage in the new world, Goldman Sachs is expanding its investment-banking footprint in Europe, moving bankers from London to outposts such as Frankfurt and Madrid.
Macario Prieto, head of technology, media and telecom in the region, is relocating to Germany’s finance hub, according to spokesman Sebastian Howell. He’ll be followed by three other bankers including Konrad Krallmann, who advises financial institutions on deals. At the same time, it’s doubling its presence in the Spanish capital to 60 bankers by the end of this year, say people familiar with the matter.
Differing Policies
To be sure, rules are far from straightforward and policies hardly uniform. At UBS Group AG, London-based bankers can still initiate business with clients in Germany thanks to a bilateral Swiss-German accord, but can’t do so in Spain, said people familiar with the situation.
AtCredit Suisse Group AG, all investment bankers in London now have to go through EU-based middlemen when proposing business to a client, according to a person familiar with the matter. That includes even bankers who advise on mergers and acquisitions, though officials at other lenders said they aren’t applying the chaperone system for their merger advisers.
Spokespeople at UBS and Credit Suisse declined to comment.
Others may also just be trying to finesse the system. Less than two weeks after Brexit fully kicked in, European regulators raised a red flag. U.K. financiers are resorting to “questionable practices” to improperly preserve the status quo, the Paris-based European Securities and Markets Authority said in a statement Wednesday.
Some firms are trying to circumvent regulations by using online pop-up “I agree” boxes that claim transactions are made at a client’s exclusive initiative, known as “reverse soliciation,”ESMA said.
“We explicitly warn clients against making wide use of reverse solicitation,” said Manuel Lorenz, who heads the German financial-services regulatory practice at law firm Baker McKenzie. “That does not rule out the involvement of British investment bankers on a deal, if properly structured and as long as the business is not booked in the U.K.”
Tough Talk
National regulators are also talking tough. Germany’s watchdog Bafin in late December reminded financial institutions that U.K. entities and their European branches would “no longer have the freedom” to provide financial services to clients in Germany and that it will enforce the new rules.
The warning may have surprised some banks “because its tone implies Bafin is serious about it and will be strict,” said Christian Schmies, an expert on regulation at the law firm Hengeler Mueller in Frankfurt.
Senior investment bankers said in interviews that the first few days of the year were marked by compliance classes, getting drilled on the changes faced by a sovereign Britain that could further erode London’s significance.
— With assistance by Nicholas Comfort
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