ALEX BRUMMER: The doomsday prophets were so wrong … the City’s profits are exploding again


The sordid and climate catastrophe may have grabbed the headlines in recent weeks, but we don’t have to look too far for good news.

The City of London is defying the prophets of doom and the concerted efforts of Paris, Frankfurt and Amsterdam to fight its role as the financial center of Europe – and much of the rest of the world.

From trading in the Chinese currency, the renminbi, to the huge expansion of the market for green bonds (fixed income instruments to raise funds for beneficial environmental projects), our financial community is flourishing, as Boris Johnson’s government unveils its intention to replace the restrictive laws of Brussels with a more agile and innovative regime.

It already seems to be paying off. Last night, the Prime Minister’s speech at Mansion House, in which he praised what some observers are calling Big Bang II, coincided with an announcement by one of the world’s largest companies, Royal Dutch Shell.

Our financial community is thriving, as Boris Johnson’s government (pictured) unveils plans to replace restrictive Brussels laws with a more nimble and innovative regime, writes Alex Brummer

Battle

Following Unilever’s lead, Shell is abandoning its dual nationality and will unify its stock exchange listing, head office and domicile in London free from unwanted interference by Dutch courts and an unfavorable tax structure for investors.

Meanwhile, America’s Fortune magazine has declared the City the winner of the fierce battle to become the 2021 hub for public equity offerings in new technology.

The London Stock Exchange may have a long way to go to catch up with Wall Street, but after Brexit it collectively leaves its continental rivals in the dust.

When Britain left the EU on January 31, 2020, I was among those who believed the Conservatives had spent too much time worrying about agriculture, which only accounts for 0.6% of production national, and far too little time on the financial services sector which employs more than 1.2 million people across the economy.

Along with professional services, such as law and accounting, it is the largest taxpayer in the country.

Much to the dismay of many of its greats - including Bank of England Governor Andrew Bailey (pictured) - the town appeared to have been left to sink or swim

Much to the dismay of many of its greats – including Bank of England Governor Andrew Bailey (pictured) – the town appeared to have been left to sink or swim

Much to the dismay of many of its greats – including Bank of England Governor Andrew Bailey – the city appeared to have been left to sink or swim.

It was feared that substantial amounts of currency and derivatives trading in London – an astonishing $ 3.6 trillion (£ 2.6 trillion) per day representing 45% of all transactions in the world – would disappear at abroad.

Although there were initial leaks to New York, President Emmanuel Macron’s efforts to attract some of this business to Paris, including the global investment banks responsible for most of the trade, have failed miserably.

And last week, when much of Westminster was concerned about the earnings of former Attorney General Geoffrey Cox, it went almost unnoticed that Brussels did indeed hoist the white flag on derivatives trading.

Instead of removing the regulatory ‘equivalency’ granted temporarily until the middle of next year for reasons of stability – meaning the EU would recognize UK regulators – Brussels has now extended it indefinitely.

And last week, when much of Westminster was concerned about the earnings of former Attorney General Geoffrey Cox (pictured), it went almost unnoticed that Brussels did indeed hoist the white flag on derivatives trading.

And last week, when much of Westminster was concerned about the earnings of former Attorney General Geoffrey Cox (pictured), it went almost unnoticed that Brussels did indeed hoist the white flag on derivatives trading.

In other words, one of the city’s biggest sources of income – and the reason Canary Wharf towers fill up again after Covid – appears to have been secured.

Despite the concerns outlined above, I have always believed that the Square Mile would win.

As a hub of commerce, banking and insurance, it survived the Great Fire of London; World War I, during the exchange of everything except on the ground; the disastrous return to the gold standard in 1925 which led to a deep recession, and the Blitz.

In the 1960s and 1970s, it rebounded stronger than ever following some misguided US taxes on overseas bond swaps that brought all of this business to London. And then in 1986 came stock market deregulation, Margaret Thatcher’s so-called Big Bang.

Boris Johnson and Chancellor Rishi Sunak are clearly determined to continue in this vein and the city seems to remain confident.

Boris Johnson and Chancellor Rishi Sunak (pictured) are clearly determined to continue in this vein and the city appears to be keeping the faith

Boris Johnson and Chancellor Rishi Sunak (pictured) are clearly determined to continue in this vein and the city appears to be keeping the faith

It’s very different from those days before Brexit when there were plenty of warnings that our departure from the EU would be a curtain for the City.

Consultants Oliver Wyman, in a widely circulated report, predicted that some 75,000 financial jobs would migrate from London to mainland financial centers.

At a private dinner for the financial writers of Goldman Sachs, a senior executive lysed on how key teams will move to Frankfurt.

Yet the Financial Services Jobs Tracker run by accounting firm EY (formerly Ernst & Young) shows that to date only 7,600 jobs – one tenth of the expected loss – have moved to Europe.

At the same time, there has been a marked increase in financial jobs, and professional recruitment agencies are reporting a record number of tech vacancies in Britain.

Expansion

Plus, some of the same companies that have warned of major moves to Europe have actually increased their engagement here.

Goldman Sachs has opened a state-of-the-art European headquarters for 6,500 employees in London.

Financial news giant Bloomberg – its founder Michael Bloomberg was one of America’s major Brexit critics – also has its new “green” European headquarters for its growing army of 4,500 analysts and journalists.

That’s not to say there hasn’t been a setback. It is often noted that custody of £ 1.3 trillion of funds under management in London has been moved to European centers such as Luxembourg and Dublin as Britain moves towards Brexit.

Financial reporting giant Bloomberg - its founder Michael Bloomberg (pictured) was among America's biggest critics of Brexit - also has its new 'green' European headquarters for its expanding army of 4,500 analysts and journalists (file image)

Financial reporting giant Bloomberg – its founder Michael Bloomberg (pictured) was among America’s biggest critics of Brexit – also has its new ‘green’ European headquarters for its expanding army of 4,500 analysts and journalists (file image)

But what is not explained is that if for legal reasons the money and the small teams of administrators have moved to the European centers, the people who manage the funds and the brokers and traders who buy and sell stocks, bonds and other assets, remain firmly established in the city.

Likewise, there was great excitement when shortly after Brexit, the pro-rest FT announced that the majority of euro-denominated stock trading had moved from London to Amsterdam.

While this was a definite loss, it was never pointed out that most of the complex transactions used the Turquoise platform, a trading system for professional investors owned and operated by the London Stock Exchange.

To feed

Boris Johnson realized that for the nation’s prosperity it is necessary to support the City reforms outlined by Chancellor Sunak in which the Bank of England and the Financial Services Authority can introduce their own rules rather than follow those of the EU.

The goal is to modernize so that the financial community can embrace the green agenda and the fintech walk.

Nonetheless, there are bound to be concerns if the rules are too liberalized and if we revert to the “light” approach that many blame for the 2008-09 financial crisis.

But at a time when the country’s finances are under severe strain after Covid, the government recognizes how important it is to nurture the financial sector.

Before Covid, the Square Mile’s tax revenue reached a remarkable £ 75.5 billion, or 10.5% of total tax revenue for the entire economy – a sum equal to 3.5% of the total production.

It now seems that fears of a drying up of this source of income because of Brexit have been greatly exaggerated.

When it comes to commerce, Anglo-Saxon and native culture, which largely rests in the hands of skilled dealers in the street markets of east London, reign supreme. May it last a long time.

About Rodney Fletcher

Check Also

10 key lessons on the HKEX

Recently, we invited Eric Li from Phillip Securities to provide the Selfwealth community with an …