Britain's financial sector reels after Brexit bombshell

[June 24, 2016]  By Sinead Cruise, Andrew MacAskill and Lawrence White

LONDON (Reuters) - Britain's 2.2 million financial industry workers face years of uncertainty and the risk of thousands of job cuts after the country voted to quit the European Union, leaving question marks over London's status as Europe's premier financial center.

The 'Vote Leave' campaign fronted by a slew of Conservative lawmakers and financial industry veterans claimed victory over its 'Britain Stronger in Europe' rival, after 52 percent of Britons voted to support their plan to leave the 28-nation club.

A morning of triumph and jubilation for the Brexit camp has been overshadowed by an average 13.4 percent fall in the share prices of the top five British banks and slides of 12 to 14 percent in elite wealth managers Schroders, Aberdeen Asset Management and St. James's Place.

The impact sent ripples across the region and European bank shares tumbled more than 14 percent, roughly twice as steep a fall as that seen among big companies, with lenders in Italy and Greece hard hit.

A leave vote means the future of Britain's financial services industry is now hanging in the balance.

All depends on the divorce between Europe and Britain, the latter's ability to retain access to the European free market, and cope with the volatility that has seen sterling nosedive against major global currencies.

The mood in the restaurants and coffee shops in the high-rise banking hub of Canary Wharf, home to JPMorgan, Citi, HSBC and Barclays, was sober and contemplative, with job security fears rising to levels unseen since the 2008 financial crisis.

Investment banks have already warned they could move thousands of jobs if Britain opts out of the EU, while the European Central Bank has signaled it could force euro trading out of London, the world's largest foreign exchange market.

Some sought to play down fears of a catastrophic hit to Britain's banking sector, pointing to extensive contingency planning and many years of experience navigating crises.

Goldman Sachs <GS.N> Chairman Lloyd Blankfein and Jes Staley, CEO of Barclays <BARC.L> - which suffered the biggest one-day fall in its share price on record on Friday - said their banks had long histories of adapting to change and would work with relevant authorities as the terms of the exit become clear.

HSBC Chairman Douglas Flint said the day marked a new era for Britain and British business, describing work to establish fresh terms of trade with European and global partners "as complex and time consuming".

Wall Street bank Morgan Stanley said the significance of the decision would not be known for some time.

A person familiar with the matter earlier told Reuters the bank could move roughly 1,000 of its 6,000 employees currently in Britain to elsewhere in Europe if Britain quit the EU.

Jamie Dimon, CEO of rival JPMorgan, told staffers his bank may need to make changes to its European legal entity structure and the location of some roles to comply with new laws, casting a pall over its 16,000 strong workforce.

In Britain's second-largest financial hub of Edinburgh, the referendum result sparked talk the city could benefit from the relocation of firms that currently use London as the gateway to Europe.

"I am already hearing rumors from contacts in London that big financial companies are instructing lawyers to look at Edinburgh as a hub," said Gordon MacIntyre-Kemp, chief executive of Business for Scotland, adding he expected a fresh Scottish independence vote by 2020.

Nearly two-thirds of voters in Scotland wanted to stay in the EU, and Scottish First Minister Nicola Sturgeon said on Friday a second independence referendum is highly likely. A referendum held in 2014 was narrowly defeated.

However, the City of London Corporation, which oversees the capital's financial district, said the leave vote should not lead to a major exodus.

"There will be no mass exit of banks and financial institutions from the Square Mile," Mark Boleat, policy chairman for the City of London Corporation, said in a statement.
The British Bankers' Association Chief Executive Anthony Browne moved to reassure people that banks across the country would be operating as normal on Friday.

"People will be able to take money out of cash machines," he said.

CARNAGE ON MARKETS

Months of bitter campaigning has left the industry - which earned the nation 190 billion pounds in 2014 - divided, with investment banks and insurers pitted against many fund managers and brokers who wanted a Brexit.

A trader from BGC, a global brokerage company in London's Canary Wharf financial centre reacts during trading June 24, 2016 after Britain voted to leave the European Union in the EU BREXIT referendum. REUTERS/Russell Boyce - RTX2HYGZ

Property investor Richard Tice, a co-founder of Leave.eu, a British Out campaign, and one of the few prominent City figures in favor of leaving, told Reuters he cried tears of happiness after the vote.

"There is huge joy, delight and pride. We have changed the course of history in the UK. It is very simple, everyone needs to calm down and do what we do well which is working and playing hard."

But there was little of that joy in trading rooms.

Sterling fell to its lowest level since 1985, the year before Britain's deregulation of financial markets that helped propel the City of London into one of the world's major financial centers in the so-called 'Big Bang'.

All the major international and British banks in London had traders either working through the night or on call.

"Leave's victory has delivered one of the biggest market shocks of all time ... Panic may not be too strong a word," Joe Rundle, head of trading at ETX Capital, said.

Sources at banks said memos emailed internally to rattled employees advised them to think about clients first.

"...The juniors are freaking out. I will tell them to focus on their job and wait for the volatility to pass but the reality is much, much starker, we'll have a crash and big layoffs," a senior investment banker at a U.S. bank told Reuters.

"It's an act of national self-harm," he added.

Many financial firms rely on the EU's 'passporting' regime to sell their services across all of the bloc while basing the majority of their staff and operations in London.

European government officials had said UK-based firms could lose these privileges after Brexit, a move that could prompt banks to shift some of their operations to Frankfurt, Paris or Dublin if they wanted to serve EU clients.

The Bank of England said it had made contingency plans and will take all necessary steps to meet its responsibilities for financial stability, in conjunction with domestic authorities and overseas central banks.

Some commentators said the volatility would be temporary and would soon subside when international investors drawn by a fall in sterling began to scour financial markets for bargains.

"Whilst some of the market falls are steep, from my long experience having worked through Black Monday, Black Wednesday, the Asian crisis, etc this is not the time for knee jerk reactions," Aberdeen Asset Management co-founder and CEO Martin Gilbert said.

Supporters of the EU project on mainland Europe said Britain would struggle to keep the same market freedoms that have attracted more than 250 foreign lenders to its shores.

"If you want to keep your market open, you have to accept all the rules. Without that, Europe would be foolish to extend privileges to the UK and the City of London," said European Parliament and German Green Party member Sven Giegold.

(Additional reporting by Carmel Crimmins, Richard Leong and Olivia Oran in New York, Vikram Subhedar, Freya Berry, Simon Jessop, Anjuli Davies, Carolyn Cohn, Maiya Keidan and Huw Jones in London; Editing by Rachel Armstrong, John O'Donnell and Susan Thomas)

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