Daily Management Review

Reuters: EU is forcing banks to leave London


07/26/2017


Banks - primary dealers on EU government bonds - may be forced to shift some operations from London, if they want to keep this business after Brexit, Reuters reports citing three informed sources.



Elliott Brown
Elliott Brown
Most of the national borrowing in Europe is managed by London investment banks. Their current "passport" allows them to provide services throughout the European Union. However, the banks may lose this right after the UK leaves the block.

EU officials are considering introduction of rules requiring that these primary dealers - banks designated by government debt agencies to help them borrow from investors - carry out significant operations in the bloc after Brexit, the bankers told Reuters. All three bank sources in London work in the business of selling state bonds of European countries.

The bankers said that the EU authorities are considering a possibility of adopting a rule similar to those in the US, and require that primary dealers on Treasury bonds work in the country.

According to them, it is still too early to talk about how many banking operations will need to be postponed, but we can talk about all jobs connected with state bonds, as well as some jobs in related services.

The European Commission declined to comment on this information. The finance ministries of Germany, France and Italy declined to comment or responded to the agency's requests. The European Central Bank, overseeing European banks, said it was monitoring events around its primary dealers.

Barclays, Citi, Goldman Sachs, HSBC and JPMorgan are among the leading investment banks involved in transactions with sovereign bonds in euros. Other banks, such as Nomura and Morgan Stanley, also conduct such operations. All these banks declined to comment or respond to Reuters' requests.

According to sources, 70% of transactions with sovereign bonds in Europe are organized by London banks that either act as market makers in government bond auctions or sell debt securities directly to investors in the framework of "syndicated" transactions.

Some banks are already preparing to transfer some positions in this business from London to other European financial centers, noted two bankers familiar with the situation.

Other banks - primary dealers - can generally get out of this business, the third source told Reuters.

The fourth source said that his company is considering a possibility of giving up this business in some EU countries, if it is required to transfer some operations from London, since this will require significant expenditures.

Another source in the industry said that, as a rule, about 15-20 people are required to work with European government bonds, but the number of jobs that will have to be transferred can be much greater.

"It is very difficult to consider the issue of primary dealers separately, as this will affect many other parts of the business," he said. As a whole, I expect many banks will transfer hundreds of jobs to Europe and their business as primary dealers will become one of the reasons for this. "

As previously reported, several international banks have already said that they can transfer thousands of jobs from London in connection with Brexit.

source: reuters.com






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