VOL. 41 | NO. 44 | Friday, November 3, 2017
As Brexit talks stall, European cities hunt for London jobs
LONDON (AP) — Hubertus Vaeth is not about to let a good crisis go to waste.
With London-based banks, insurers and asset managers scrambling to prepare for Britain's exit from the European Union, he's putting out the welcome mat for anyone looking for a new EU base. Vaeth, who heads Frankfurt's financial services trade association, estimates 10,000 jobs could move to the German city from London as a result of the impending upheaval.
He isn't concerned that some see him as a vulture.
"I was once called a Frankfurt wolf in sheep's clothing, which I took as a badge of honor," Vaeth says during a visit to London. "Yes, I'm taking jobs away. But those jobs are not remaining here if I wouldn't do it. ... So it's not me taking them away; it's me directing them to Frankfurt as they go anyway."
Pressure is growing by the day on financial firms with EU bases in London to decide when to activate their Brexit contingency plans. The biggest question is how many jobs to move out of London and where to move them, as the companies are concerned their ability to do business across the EU's market of 500 million people may be restricted after the U.K. leaves the bloc in March 2019. But Britain's negotiations with the EU about a future relationship, due to resume Thursday, are painfully slow.
Amid the growing unease, cities like Frankfurt are pressing their case.
So far, the German city is neck-and-neck with Dublin in grabbing business, according to data released late last month by the global consulting firm EY. The company, which tallies the public statements of 222 of the largest financial service firms on its "Brexit Tracker," says 13 have confirmed they are moving staff or operations to Dublin compared with 12 for Frankfurt. Luxembourg is third with six.
"The industry is still getting ready for a cliff edge," said Omar Ali, EY's UK financial services leader. He said it's too early to say if the British government will be able to secure a two-year Brexit transition period, which would give firms more time to adapt, and whether that would affect their decisions on jobs. "At this stage firms are still only moving what they have to."
Ali put that number at around 1,500 jobs so far. But EY estimates that as many as 13,000 jobs from these 222 businesses are at risk. Some executives estimating as many as 100,000 leaving London in the long-term. Some 2.2 million people work in British financial services and related professions, according to the industry association, TheCityUK.
In cities like Frankfurt, there is some early evidence of this impending shift in jobs. Demand for prime office space has risen in each of the past three quarters, pushing rents higher, according to a report released Nov. 1 by Vaeth's group, Frankfurt Main Finance. The report is based on data from four large commercial real estate companies — BNP Paribas, Colliers, Jones Lang LaSalle and Savills.
By contrast, London's real estate market is weakening. Rents for prime office space in central London fell 0.2 percent in the three months ended Sept. 30, marking a third consecutive quarter of declines. The London figures compare with growth of 1.8 percent in southeastern Britain and 0.3 percent in the U.K. as a whole.
Frankfurt Main Finance began preparing for Brexit even before Britain voted to leave the EU. On the morning after the June 2016 referendum, the group launched its "Welcome to Frankfurt" campaign, complete with call center and social media campaign to attract bankers.
Vaeth has been visiting London ever since, promoting what he describes as a leafy city with great schools and a good quality of life. Going against Frankfurt is its relative lack of diversity and energy that a cosmopolitan city like London can offer.
In its own sales pitches, Paris has flaunted its ability to rival London as a world city, though it suffers from relatively higher taxes and stiffer labor laws. Dublin, while favored for its use of English, lacks scale in its financial industry.
Vaeth likes to say Frankfurt wants an amicable divorce, followed by a passionate love affair with London. He stresses that he does not want to sever ties with London because the city's unique ecosystem of bankers, lawyers, and other professionals means it will remain Europe's leading financial center after Brexit.
It is at least one thing on which he agrees with Miles Celic, the chief executive of TheCityUK.
"London is proving to be sticky: people don't want to leave London but they are having to make contingency plans," Celic said. He cited a recent study that suggests that with some 75,000 jobs at risk of leaving, many of those jobs could in fact not go to Europe but to global financial centers like New York, Singapore or Shangai.
The focus on Frankfurt intensified last month when Lloyd Blankfein, the CEO of U.S. banking giant Goldman Sachs, took to Twitter to hint he could be sending more jobs there.
"Just left Frankfurt," he tweeted. "Great meetings, great weather, really enjoyed it. Good, because I'll be spending a lot more time there. #Brexit."
He later posted a picture of Goldman's new European headquarters, which is under construction in London, suggesting the bank may not be able to fill the building when it opens in 2019.
Goldman, which employs some 6,000 people in the U.K., has signed a contract to lease eight floors of a skyscraper in Frankfurt, capable of holding 800 staff.
Other banks looking to bolster their Frankfurt operations include Morgan Stanley, Citigroup, London-based Standard Chartered and Japanese banks Daiwa, Sumitomo Mitsui Financial Group and Nomura.
Stephan Leimbach, head of office leasing at property firm Jones Lang LaSalle in Germany, said many are watching what Goldman does.
"It's a big bank so that will be a kind of signal to others," Leimbach said. "At the beginning you need these forerunners who set the trend."
Christoph Noelting in Frankfurt and Martin Benedyk in London contributed to this story.