Now that the results of the Brexit referendum have been finalized, the value of stock on British exchanges has plummeted as well as the trading rate of the British pound.
Bankers who were used to having unfettered access to European markets and direct connections to the Continent are now wondering if they’ll be able to continue doing business as they had in the past.
Concern is gripping the City of London — the business subsection of the British capital — over whether it will remain a major center of financial activity now that it appears it will be independent of the European Union (EU).
In the absence of direct integration with the EU, some companies have indicated they may want to base their offices or headquarters in another city that’s within the EU’s borders. If that happens London will undoubtedly lose its reputation as being a major financial hub for European based companies.
But where will these companies go? Some of the cities that may potentially steal London’s financial thunder in the near future might be:
- Frankfurt
With Germany being the financial locomotive driving the train of the European Union’s economy, the country’s financial capital may be headed for an expansion, as more companies realize that it may make sense to be at the center of the EU’s economic activity than in a satellite city.
Deutsche Bank, the European Central Bank (ECB) and the Eurex derivative exchange are all located in Frankfurt. The city is well-equipped for trading and communications; there’s more than a million square feet of empty office space.
Quality of life in the German city is high, and living costs are lower than those of London, Paris or New York. The city also has a reputation for being able to attract and retain top-notch talent.
- Paris
The La Défense section of Paris is where many large multinational firms have their operations. The French city already handles some €2.6 trillion worth of trading, and Euronext is there, the second-largest exchange after London’s in terms of volume and capitalization.
Europe’s biggest bank, HSBC Holdings, has major Paris-based operations. EU bond selling activity is also heavily concentrated in the City of Lights; about 35 percent of all European bonds are issued from Paris.
A negative factor for Paris, however, is French labor laws, which strongly favor workers. Taxes also can be high in the French capital, a matter that banks have asked the government to try to make adjustments to.
- Luxembourg
Although technically a country rather than a city, this diminutive state is already the home of more than 140 banks with assets totaling almost a trillion dollars. Much of the country’s business is banking, and nearly half of its citizens are foreigners.
A number of well-known companies have made Luxembourg their European headquarters, including Skype, Paypal and Delphi. Private banks in Switzerland are also said to be expanding their offices in the country. Tax rates for Luxembourg are lower than for many other areas of the EU.
- Dublin
Dublin has been a center of EU economic activity for years, rivaling London, especially for tech firms. Many financial enterprises have servicing and back-office operations in the Irish capital.
M&G Investments and other trading firms such as Morgan Stanley and Credit Suisse have announced they’re looking to expand their Dublin operations. Twitter, Facebook, Google and Dropbox have opened European headquarters in the city.
Ireland’s favorable tax rates make it an attractive place to do business; the legal system is very similar to that of Great Britain’s. Numerous business publications are predicting that in the wake of Brexit, Dublin will absorb a hefty chunk of financial activity departing the UK.
It doesn’t hurt that the primary language is English, which would make a transition from London easy for some workers.
- Edinburgh
Another city where English is spoken is Edinburgh, in Scotland. While it’s technically true that Scotland is part of the United Kingdom, most of the jurisdiction voted for the Remain camp in the Brexit referendum.
The leader of the Scottish National Party, Nicola Sturgeon, has indicated she would like Scotland to vote whether they’d like to remain in the EU separately of the rest of England, necessitating independence from the U.K. monarchy.
In fact, Scots voted on independence only a year ago (the measure was narrowly defeated, but it could be raised anew via a fresh referendum). Many asset management firms are located in Edinburgh, and the city is also home to major financial player Royal Bank of Scotland (RBS).
