August 19th, 2014
As covered by the Financial Times, it is widely expected that the largest US banks will move their base of operations from London to Ireland, if the UK follows through with its exit from the European Union. While it is in no way certain that the Government will follow through with the move, the signs of a potential move appear to be sufficient for Bank of America, Citigroup and Morgan Stanley to have considered their options were this to occur.
The FT confirmed that ‘people familiar’ with all three banks had confirmed that Ireland would be the best possible fit to relocate their European activities to, if the separation occurs. The report confirmed that plans were definitely not yet formalised, but would come into play ‘for the euro zone’s impending banking union that threatens to isolate Britain and, ultimately, for a possible UK exit from the EU.’
The UK has for many years been the centre of European operations for many of the major US and Asian banks. By basing operations in the British Isles, these organisations have then had access to provide their services through-out the whole of Europe. The belief for banking executives amongst US firms is that the potential exit of the UK from the EU would mean that this option would no longer be available to the UK.
David Cameron has set out plans for a referendum on the terms of the UK’s membership with the EU, if the Conservative party wins the next year’s election. The FT quotes one unnamed executive at a US based bank as stating, “I don’t think people are making enough of it – a lot of passported activities that cannot take place in London will not exist here anymore.”
The rift between the UK and the EU has increased in recent months, with the recent court case of the Treasury suing the European Central Bank for blocking the continuation of lucrative clearing houses for financial trading being based in the majority in the UK, causing further ire amongst officials. The EBC is soon to follow through with the proposed plan to take control of the largest banks within the Eurozone towards the fourth quarter of 2014, and the belief for many US senior banking executives is that this will further erode relations between the two.
As the FT notes, ‘Ireland’s attractions for US banks include its low corporate tax rate, English speaking population, English-style legal system and euro zone membership.’ Referring to the issue as Brexit, Barney Reynolds, a partner at law firm Shearman and Sterling noted that: “The noises you hear from the American banks regarding Brexit are concerned ones. It is very complicated and expensive to move infrastructure like trading floors, but it is not impossible. If you are looking for one event that might trigger it, it is Brexit.”
A final warning on the consequences of an exit from the EU came from the Association of Foreign Banks, comprised of such banks as Societe Generale and Sumitomo Mitsui Trust Bank. The AFB stated that: “If Britain withdraws from Europe, then foreign banks may reassess their reasons for maintaining their business in Britain and may decide to continue their business elsewhere.”
Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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