Financial giants are expected to follow in the footsteps of Lloyds of London by setting up subsidiaries across the Continent, but analysts have cast doubt over whether this will serve as a huge blow to the British economy.
Last week, insurance giant Lloyds of London revealed its plan to set up a subsidiary business in Brussels, which is the first major British player to confirm a move outside of the UK in direct response to Brexit.
In a statement, the group’s chief executive Inga Beale pointed to the Belgium capital's robust regulatory framework and central European location.
“It is important that we are able to provide the market and customers with an effective solution that means business can carry on without interruption when the UK leaves the EU,” he said.
The announcement came just 24 hours after UK prime minister Theresa May triggered Article 50, which has set the ball rolling for Brexit negotiations to begin.
I think there will be a steady drip of operations moving, but a wholesale shift seems unlikely at this stage. Chris BeauchampChris Beauchamp, senior market analyst at IG, said he expects a drift of subsidiaries to the Continent, which he described as a “common sense move”.
He said businesses need to “cover their bases” in case something happens over the next two years which prompts a so-called Hard Brexit or a “jarring turn of events”.
However, Mr Beauchamp said it was important to point out that these firms are not leaving London completely, adding: “A wholesale change to the landscape is not in anyone’s interest at this point.
“Companies simply have to react to what’s on the ground and what they are expecting, and this is the first sign of that.”
The IG analyst admitted London will have to adjust to a different world, but expects there only to be a move of small-scale operations, meaning the knock on the British economy might not be as bad as people feared.
“A lot of the heavy-weight stuff will remain in the City of London,” he said. “I think there will be a steady drip of operations moving, but a wholesale shift to Paris or Dublin or wherever seems unlikely at this stage.”
In November, the head of AIG’s European arm Anthony Baldwin admitted the insurer was debating moving its European headquarters back to Paris, less than five years after relocating to London.
Meanwhile, JP Morgan is rumoured to be eyeing up an office in Dublin which would accommodate around 1,000 people, according to FTAdviser’s parent publication the Financial Times.
In October, asset manager M&G confirmed it was looking to build a base in Luxembourg in response to the UK’s divorce from the European Union.
Laith Khalaf, senior analyst at FTSE 100 firm Hargreaves Lansdown, echoed Mr Beauchamp’s points, adding: “I think it’s only natural that some companies will be thinking it’s better to be safe than sorry.”
He said many companies will want to move some operations to Europe to make sure their business operations stay as fluid as possible, irrespective of how the Brexit negotiations go.
“I suspect this is likely to be quite piecemeal to begin with, as companies like Lloyds simply put a foothold down on the continent which they can bolster if needs be as Brexit takes shape.”
Graham Spooner, research analyst at the Share Centre, said companies will be hedging their bets in light of the Brexit vote.
However, he said he thought London's economy will stay ahead of most other financial areas and is unlikely to suffer severely from firms setting up a base across the Channel.
“I still think these firms will need to have a big presence in London,” Mr Spooner said, questioning whether some big plans will come to fruition.
katherine.denham@ft.com
