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Much of the City of London has felt on the losing side of the business world for nearly a decade. Banks in particular have been through the mill, suffering financial losses from the 2008 crisis, tougher regulation, scandal and now an economic environment that combines low growth with ultra-low, sometimes negative, interest rates.
The low-rate environment has also made life difficult for insurance companies, crimping investment returns and exposing life insurers that have made generous return promises to policyholders. On balance, asset managers have looked by far the strongest subset of the City’s core operators.
Brexit, both the threat of it and the prospective reality, has only added to that impression. There have been some obvious winners among the hedge fund fraternity such as Marshall Wace, Odey Asset Management and TT International, who bet on an immediate decline in UK equities, and short-sold them. Sterling bears have also cleaned up. And the tough but not disastrous economic climate has fuelled another wave of asset manager inflows, as yield-hungry investors seek out equity returns.
For the sector as a whole, the most visible downside of Brexit — a panicked withdrawal of money from some open-ended property funds— appears to have been shortlived. But, for the banks, the addition of Brexit to the cocktail of challenges has left a uniformly sour taste.
UK, US, Swiss and Japanese banks may need to scope out a new EU base if London is no longer a hub from which to “passport” into the single market. Equally, for French, German and Spanish operators, passporting into the UK may be over. In all cases that will mean higher and duplicate operating costs and a greater commitment of capital to new subsidiaries.
At the same time, sourcing the best staff from the EU and beyond is likely to be tougher amid a crackdown on immigration.
“However the negotiations on Brexit come out, it seems fairly certain that the outcome will be more complex bank structures with higher capital costs,” says Simon Gleeson, partner at law firm Clifford Chance. “The issue is how significant the cost increase turns out to be.”
The City’s legal advisers are themselves set to be the biggest winners out of Brexit. Like the big consultancy firms, they are awash with clients who need to plan and restructure and, in many cases, understand the niceties of a European legal framework that would once have been seen merely as academic small print.
Stuck on the fence, in the middle of the winners and losers parade, are those in the financial technology community. Some fintech entrepreneurs think they might benefit from less red tape. Others are convinced that London’s newfound distance from Europe will undermine the hub status of its “Silicon Roundabout”.
“Many successful companies in America and in this country are founded by immigrants,” Brent Hoberman, the entrepreneur and Founders Factory chief, told a recent Financial Times event in London. If those start-ups choose Berlin over London now, few will notice. When they are $1bn companies, it will too late, says Mr Hoberman. “It’s the brand damage of when immigrants think they’re not welcome here.”