Monday, October 10, 2016

The big winner of Brexit: Probably not Frankfurt, rather New York

Since the UK announced that the Brexit vote will move ahead in early 2017 -- BTW we are still assuming that the vote will be for exit.  Popular support for Brexit was diminished considerably over the past few months, yes the world has not ended, but everyone can see the writing on the wall, little chance of getting trade agreements signed before the end of 2019 (if a country as insignificant as Canada has told the UK that they will not be ready to hold talks before 2020...).  Overall, the battle are for the high paying jobs of the city.

There is a strong feeling that something will have to be done, that several banks will move certain core operations within the Eurozone, but when thinking about it there are a number of issues that made the City attractive:  First they speak a form of English...not entirely understandable by the colonies, but we tend to get most of it, see the chart below

But you get the idea.  Second aspect that is very attractive: English law -- very similar to New York law but with some interesting variations.  Finally as an AngloSaxon country many of the labor "rules" are similar.

The last one is why New York will be the big winner from Brexit.  Again New Yorker speak a form of English that most of us understand.  Looking at the "real contenders in Europe we have:

  1. Franfurt
  2. Luxemburg
  3. Paris

Let take care of Paris first, no "Wall Streeter" in his right mind will consider France, their labour system, and taxation make it prohibitive, plus their labor laws are "interesting" insofar as firing an employee is very difficult -- how would banks function in that environment?  Luxembourg is attractive but since it is the size of a pocket handkerchief with a population of 1/2 a million its simply not serious.  Already many of the Brits tried Zurich a few years back -- the country's infrastructure is simply not able to support bankers in any number (eg education).  That leaves Frankfurt -- and there they speak a very different English -- its called German, and Germans are very much like Americans; the vast majority only speak German (its not a fault its a feature).  Then there's German labor laws that are both expensive and Byzantine.

My best guess is that sales team will move to the continent (often in locations that are advantageous for the sales teams efforts), but that trading activities and all support activities will move to the US.  That's the most logical outcome.

Noise is coming out of Germany that they will reform their labor laws so that the rules only apply to salaries of less than Euro 150,000 thereby making Frankfurt more attractive, but how do you think the French will react to that shift.  My guess are screams of protest.  No overall, New York will benefits the most from Brexit!

As a side note things in Greece continue on their own rotten way.  Greece is expecting the release of the last tranche (Euro 2.8 billion) of the state aid that was given to Greece two years ago (for a total of around Euro 11 billion).  Big question, what will happen to Greece at the end of 2016, when the new cash (to repay the European investor's loans) run out?

I lost my bet so I am far less invested than I was before, still things in Greece are rotten (granted they are not that great in Italy or France for that matter).  What's the next step?


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