UK banks fear public,
politicians set against them on Brexit
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[October 24, 2016]
By Anjuli Davies, William James and Andrew MacAskill
LONDON
(Reuters) - For decades, Britain's bankers have relied on their
industry's outsized status in the economy to find a receptive ear in
government.
But in the aftermath of the country's vote to leave the European Union,
the sector that generates about a tenth of national economic output is
grappling with an uncomfortable new reality where economics doesn't
always trump politics.
June's vote to quit the EU has triggered a change in leadership and tone
in the British government with new Prime Minister Theresa pledging an
industrial revival and to build "an economy that works for everyone" -
setting nerves jangling in the City of London global financial hub.
Reuters spoke to several senior bankers from big British and
international banks based in the city, including some involved in
discussions with the government over Brexit.
Many said their warnings about the impact of a so-called hard Brexit –
where they lose their access to the European single market – were being
met with scepticism by the government and accusations from some
eurosceptic lawmakers that they were undermining the message that
Britain can thrive outside the EU.
"It's almost as if we were back in the 1940s and we were looking for
fifth columnists all over the place because people are trying to do
Britain down," said Ronald Kent of the British Bankers' Association (BBA).
The term "fifth column" refers to a group of people that acts secretly
against the state to assist an external enemy.
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The head of the BBA, Anthony Browne, said on Sunday that the public and
political debate was "taking us in the wrong direction" and that big
international banks were preparing to move some operations out of
Britain in early 2017.
The government has pledged to execute Brexit following a vote to leave
the European Union that was driven in part by a desire to curb
immigration and was regarded as a repudiation of a London elite,
including a banking sector still the subject of lingering public anger
over its role in the financial crisis.
While finance minister Philip Hammond and his ministerial colleagues
have been keen to assert the financial industry is of great importance,
officials say privately the Brexit deal will have to work for the
country as a whole - and means the banking industry cannot expect
special treatment.
"There is no question of prioritizing the financial sector, or any other
sector in those talks – it's not fair to talk in terms of special
cases," said one source with knowledge of the government's approach to
the negotiations with Brussels.
The finance ministry referred a request for comment for this story to
remarks made by Hammond to a parliamentary committee last week. He said
addressing the Brexit challenges faced by the financial industry was a
very high priority for the government.
NO SPECIAL STATUS
Some government officials have said that the industry could be
over-stating the importance of issues such as "passporting" - the system
by which they can carry out certain activities across the EU but be
regulated just in one country.
Financial services minister Simon Kirby told a parliamentary committee
hearing last week that the finance ministry was looking into the
passports used by businesses for various financial activities.
"Some of those passports are redundant or unused," he said. "Actually
getting to a situation where you can assess the impact is not quite as
straightforward as you think."
Several bankers said they were surprised by the ruling Conservative
Party conference this month, when May appeared to move towards a hard
Brexit stance by signaling that curbing immigration would take
precedence over single market access.
"Undoubtedly, things have changed for financial services," said one
senior executive at an international bank, who declined to be named due
to the sensitivity of the matter, adding that there had been a "sea
change" in how banks are viewed by the government.
Another banker told Reuters that although the mantra so far has been
that there would be no "special status" for any industry group, they and
other banking executives had sensed a more conciliatory tone from the
government when dealing with carmaker Nissan this month - in contrast to
the harder line they perceive as being taken with the financial sector.
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![](../images/102416pics/busine37.jpg)
Britain's Prime Minister Theresa May holds a news conference after
the EU summit in Brussels, Belgium October 21, 2016. REUTERS/Eric
Vidal - RTX2PV88
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The largely foreign-owned car industry was a strong supporter of
continued membership of the European Union ahead of the June 23 vote,
benefiting from unfettered access to the world's biggest trading bloc
and its standardized regulations.
Nissan CEO Carlos Ghosn said on Oct. 14, after meeting the prime
minister in London, that he was confident Britain would remain a
competitive place to do business.
David Davis, the minister in charge of Britain's exit from the EU, said
last week he was determined to secure the best possible terms of trade
for the financial services sector.
LOBBYING BLITZ
The financial industry, which pays about 60-67 billion pounds in annual
taxes, could lose up to 38 billion pounds in revenue in the event of a
hard Brexit, and 75,000 jobs could disappear in Britain, according to a
report commissioned by industry group TheCityUK.
But there are signs that a four-month lobbying blitz by some of the
world's largest banks has backfired.
Officials say the banks have failed to appreciate the sheer scale of the
government information-gathering exercise as it tries to determine its
priorities.
The finance ministry is doing a sector-by-sector analysis of the
different Brexit scenarios on revenues, employment and tax receipts to
inform Britain's negotiations with Brussels.
One source complained that London financial services firms had presented
a disparate list of demands and then quickly become impatient that their
views were not being listened to.
There is also a sense among officials that the industry's warnings have
not panned out in the past, several banking and government sources have
said.
After the financial crisis many banks threatened to move operations
overseas because of a wave of higher taxes and regulation. At the turn
of the century, some financial sector executives also warned the failure
to join the euro would lead to a withering in London's role as a hub for
global business.
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"The government is underestimating the impact this time. This is not an
idle threat," said one banker, who has held talks with government
officials.
Banks including HSBC, JPMorgan and UBS have already warned that they
could move thousands of jobs from Britain.
Government sources, while acknowledging the huge importance of the
financial services sector to the economy, say talk of a mass exodus is
unrealistic.
"The feedback from Wall Street was that any move to Paris would happen
'over their (global banks') dead bodies'," said the source with
knowledge of the government's approach, speaking on condition of
anonymity. "And Frankfurt simply isn't big enough to handle it (being a
global financial hub)."
Some eurosceptic lawmakers have suggested that a "soft Brexit", where
Britain might retain some access to the single market in return for a
degree of free movement of people from the bloc, would thwart the
democratic will of voters.
"Bank lobbyists are going down the wrong route on Brexit. They just seem
to be whining," Conservative Party lawmaker Jacob Rees-Mogg told
Reuters. "They don't like the fact that they've been overruled by the
people who voted."
(Additional reporting by Huw Jones; Editing by Pravin Char)
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