Like many multinational companies, Italian engineering company Brembo also relies on London to manage finance. Brebe is close to the Alps and produces brake sets for Formula 1 racing and motorcycles, which are sold in 70 countries. The company's annual bank accounts for hundreds of millions of euros, and London is the hub for these payments.
As the UK is preparing to withdraw from the EU, Brembo said that he may have to transfer the center of bank financial operations to Frankfurt. If the UK withdraws from the EU and has not reached any terms for London's financial services industry, London's banks, funds and insurers will lose the ability to provide many services to European companies.
Financial and business people say that this upheaval will not only affect London, but Europe will not be spared. Financial companies say the change means that the financial costs of European companies will rise, although it is unclear who will pay for it -- the bank or their customers.
Breto Executive Vice President Matteo Tiraboschi said in an interview with Reuters at the company's headquarters, "In the end, this will not be the trouble of Brembo, but the trouble of our bank. We expect to enjoy the same service at the same price." Citigroup, the main bank of the bank, declined to comment.
Industry insiders worry Reuters interviewed dozens of executives, lawyers, academics, rating agencies and lobbyists from big British and multinational banks who cited some of the risks that could be brought to the business and consumers in the London market. Bank of England President Carney said the EU needs London money. He said that the United Kingdom is a "European investment banker", and half of the bonds and stocks issued by the European Union involve British financial institutions.
The cost of re-adjusting the business is high, but the differences between the parties are large. According to a study by the Boston Consulting Group (BCG), investment banks will increase their EU costs by 8-22% by setting up a new European outpost to gain access to the EU's single market. According to another study conducted by JPMorgan Chase, for eight large US and European banks, if they were forced to move their capital markets business out of London because of the British retreat, they would have to pay a total of $7.5 billion in the next five years. According to JPMorgan Chase, the cost is equivalent to 2% of the global average annual cost of these banks.
Bankers say most of the extra costs will eventually be passed on to customers. According to Richard Gnodde, CEO of Goldman Sachs Europe, “If production costs rise, eventually many of our costs will be transferred to customers. As long as you start to diversify your pool of liquidity or break up the capital base, efficiency will be worse and costs will rise. â€
Financial companies headquartered in the UK are trying to transfer some of their operations to other parts of Europe to ensure they can still serve EU customers, but they warn that the redistribution of this regional financial structure could jeopardize economic stability, which is not limited to the UK. The EU is also hard to escape because there are so many European capital flows through London. European countries, especially France and Germany, do not have such concerns. They believe that the British retreat brings opportunities to take advantage of the vast amount of business from the UK and establish their own financial centers.
According to Reuters data, the UK accounted for 5.4% of global stocks by market capitalization. The European Commission's Vice Chairman, East Blovsky, said that after deducting the UK, the EU still can account for 15% of the global stock market and is taking steps to strengthen its capital market. But he said: "Decentralization is hindering our financial services industry to maximize its potential."
Jean-Louis Laurens, a former Rothschild senior banker and current international ambassador of the French Asset Management Association (AFG), told Reuters, “If London is fragmented, it will be more efficient in other places. The EU and the UK will suffer.â€
Cornucopia London is currently home to the world's largest banks and has the world's largest commercial insurance market. About 6 trillion euros (about 6.8 trillion US dollars) or 37% of European financial assets are managed in London, nearly twice as much as its nearest rival, Paris. And London dominates the European 5.2 trillion euro investment banking industry. The London market provides insurance for French nuclear reactors and Greek ships, where German carmakers borrow money for expansion and Dutch pensioners invest in deposits.
According to the Bank for International Settlements (BIS), the UK is the world's largest foreign exchange market and the second largest derivatives market, accounting for nearly 40% of the global market transactions, and its competitors - Paris Less than 5%.
According to the City of London government, the total amount of euro, yen and US dollar transactions in the London market is 869 trillion US dollars per year, exceeding the total volume of transactions in all euro-zone countries.
Barclays chairman John McFarlane told Reuters that if the deal between the UK and the EU is not good, it could hurt the international economy; some banks may decide to abandon some of the business because the cost of these businesses is too high.
Bankers say that when the UK retreats, many areas may be affected. The first is the ability of Europe to sell sovereign debt. Currently, when a country, for example, Portugal or Greece needs to sell bonds to maintain hospital or school operations, it is mainly arranged by banks in London to enter the bond market. According to bankers, companies based in London currently sell about 70% of European sovereign debt.
But some banks have given up on the sale of bonds because they are unprofitable. Reuters reported in January that in the first quarter of this year, five banks stopped serving as primary market traders for multiple European sovereign debt.
The bank's chief executive, one of the UK's largest banks and one of the largest underwriters of European sovereign debt, told Reuters that the European Central Bank called him and asked him not to abandon the sale of European bonds because of Brexit. “You cannot exclude them (EU countries) from the London capital market,†he said. “This is undoubtedly suicide.†The European Central Bank did not comment.
The second area that may be affected is the sale of derivatives, and some companies will buy derivatives to hedge against the risk of dollar volatility or rising oil prices. Bankers say that London's competitors offer a smaller lineup of such services and a relatively high cost, as there are not many banks offering such services.
The third area that may be affected is the euro-denominated derivatives clearing business, which is currently dominated by London. Liquidation is the guarantee for the safe completion of transactions. EU policymakers hope that such liquidation will be transferred to the euro zone after the Brexit. Financial industry sources say that for European customers involved in multiple currencies, this will increase transaction costs, because their transactions will have to be transferred to multiple clearing houses, they need to come up with more collateral to support These transactions.
The Futures Industry Association said that the forced relocation of the euro clearing house would result in an increase in cash demand for such transactions of about $80 billion. The European Options and Futures Exchange (Eurex), which is expected to benefit from the clearing house migration, said that cash demand growth was between $3 billion and $9 billion, far less.
The global head of the foreign exchange business of a large multinational bank said that if the cash demand for support transactions increases by as much as $80 billion, which is twice the current amount, it will inevitably cause the market to stop.
Bankers say it is difficult to estimate how much the borrowing costs of European companies will increase without direct access to the London market. The European Financial Market Association (AFME) said in a report earlier this month that if European customers think banks will pay, it is really overly optimistic. According to the report, for companies of similar size to Brebo, debt financing and derivatives costs, if increased, will have a substantial impact on the business and reduce its competitiveness.
Breb's Tilaboschi doesn't think so. He said, "As far as Brembo is concerned, we have not found signs that the Brexit will lead to an increase in financing costs."
Face the reality Last fall, the British government began to persuade the EU that if London's status as a financial center is weakened, then the EU will face risks. Ernst & Young's research on major companies such as Volkswagen and Airbus found that European companies are worried about rising financing costs. The report commissioned by the City of London government has been submitted to decision makers in EU countries.
The British government expects European companies to tell their respective governments that they are facing rising costs and potential impacts, putting pressure on politics to take this into consideration during the Brexit negotiations.
In a speech at the end of June, British Chancellor of the Exchequer Philip Hammond said that if Europe weakens London's position as a global financial center, it will only hurt its own economy. “Dispersed financial services will lead to a decline in the quality of products and prices,†he said.
But Jeremy Browne, the special envoy of the City of London in Europe, said that some companies and politicians are willing to stick to EU regulations at the expense of rising prices and not give London any special immunity. Jeremy Browne visited 26 EU countries in the past year. “They didn’t ask their governments to be tolerant of Britain,†Browne said. The UK Treasury Department did not comment.
As the official Brexit negotiations have started, the EU is motivated by a strong European Central Bank to work hard to replicate the UK financial services industry model on the land of the euro zone. In 2015, the European Union launched the “Capital Market Alliance†program to improve the way companies finance through stocks, bonds and other securities. The European Commission said in early June that the plan is receiving high priority.
The European Central Bank said that in the long run, for those eurozone bankers who want to seize the business opportunities brought by Brexit, it may be helpful to reach a “new equilibrium†– in the short term, financing costs may only “ A small increase.
Former French Central Bank President Noah is lobbying financial companies to move to France. He told Reuters that if European banks had time to adapt, "they will start working exactly the same as in London." "I don't believe that this will cause damage," he said.
At least eight cities in Europe are competing for financial institutions to set up entities in Europe, hoping to attract high-paying employees. The French government is the most active in its actions. In addition to highlighting the cultural charm of Paris, it is also committed to providing tax incentives and flexible labor regulations.
The chief financial officer of a large European bank said that during his recent briefing by French officials, they highlighted the restaurants and nightlife in Paris.
A senior lobbying official who had talked with the German government recently pointed out that it felt that the UK did not realize the priority of the European plan. "British politicians think their situation is that the EU-27 Congress said 'well, there are many problems in the EU, so we will reach a trade agreement, otherwise the EU will face turmoil." They just can't figure out the situation," he said.
The chaos is a skeptical attitude towards bankers in Europe who are committed to replicating London. They say that other European countries are overly suspicious of British free market capitalism, and many politicians blame the above-mentioned doctrine for the 2008-2009 global financial crisis.
Executives point out that, in keeping with the global talent pool, the widely used UK legal system and the vast capital managed by London, the dominant position of London's financial centers for decades will be difficult to replicate .
The head of the European division of a large US investment bank said that if Europe tries to reform labor laws, develop capital markets, and attract global talent, it will mean that the status of London's financial center will decline. However, he pointed out that due to the disagreement among EU countries, there is no clear plan for the final arrangement of employment and assets, so Europe may miss this great opportunity.
Three sources told Reuters in May that Germany, France and Italy had different opinions among the three major European countries, which made the European Central Bank commit to make the euro clear from London for settlement, and the efforts to be incorporated into the bank’s supervision were stagnant at an early stage. Not before.
The aforementioned US executives said that Europe "will come to the forefront of the financial center." He said that this is a "great risk." "If Europe becomes so unattractive, our scale in Europe will not be like today. It’s the same big. Europe won’t win.â€
In retrospect, some bankers predict that New York, which is 3,500 miles away, may be the biggest winner. They say that New York is the only place where it can be replicated in terms of the depth and professionalism of London.
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