The UK parliament can’t agree on how to leave the European Union but many finance firms have already decided how much money to move out of the City of London - a shift that’s seen by some as irreversible.
The big banks were among the first to plan to move assets out of London, with Frankfurt standing to benefit handsomely. Five of the largest banks looking to serve continental European customers now intend to move €750 billion (Dh3.12tn) of balance-sheet assets to Frankfurt, according to sources.
Deutsche Bank is taking the lead by repatriating at least €400bn, the sources said.
JP Morgan will move €200bn to the host city of the European Central Bank over the next year or two, twice as much as previously reported, another source said.
Spokespeople for Deutsche Bank and JP Morgan declined to comment. The figures add detail to previous predictions from lobby groups about the capital flight to Frankfurt.
In the immediate aftermath of the Brexit referendum, banks assumed they could continue to provide services to continental clients simply by setting up legal entities in the remaining EU countries. However, the ECB, the Bundesbank and Bafin - the German markets regulator - all demanded that continental subsidiaries hold sufficient resources, with the latter warning against "letterbox" subsidiaries that contain little more than a postal address.
While the banks have mostly chosen Frankfurt, the trading venues and the algorithmic traders that provide much of their volumes have mostly gone to Amsterdam. Trading venues need to be physically in the EU to guarantee that firms based in the trading bloc can access them after March 29.
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CME Group is moving its BrokerTec market for short-term funding, Europe’s largest, to Amsterdam from March 18. This is in addition to the €200bn a day repo market, whose move was unveiled in November, according to . The firm is also moving its European government bond venue and its separate $15bn a day EBS foreign-exchange forwards and swaps market to the city. CME does not disclose volumes for bond trading outside the US.
Many more trading venues have chosen to reproduce their London trading services on the continent. Applicants to the Dutch markets regulator to operate a multilateral trading facility include London Stock Exchange’s Turquoise unit, TP ICAP, Tradeweb, MarketAxess and Bloomberg LP - the parent of this news organisation.
Despite the exodus of cash, Zach Pandl, co-head of global currency and emerging-market strategy at Goldman Sachs, said of the pound in an interview on Bloomberg Television: “We think it’ll be the highest-performing G-10 exchange rate this year."
European Union Economic Affairs Commissioner Pierre Moscovici said on Wednesday that the risk of a no-deal Brexit had increased in last few weeks and it was up to the British to tell the EU how they proposed to break the impasse.
"Certainly the EU is there, the EU is waiting, the EU is ready but first we need to know clearly what are the British intentions and we need some clarifications from London," Mr Moscovici told Reuters at the World Economic Forum in Davos.
Britain's opposition Labour Party said on Wednesday it was "highly likely" next week to back an amendment that could prevent a no-deal Brexit - which has long been seen as the worst-case scenario for the pound.
That lifted the pound 0.3 per cent against the dollar and by 09:50 GMT to $1.3005, a 2-month high. It also rose for a third consecutive day versus the euro to 87.45 pence.
After Brexit, Cboe Global Markets’ Amsterdam-based regulated market will handle all stocks listed in EU member states, with UK and Swiss equities remaining on the firm’s London-based MTF.
After most trades are agreed, the clearinghouses take over. London’s three clearinghouses dominate markets including energy and metals, but the firm most susceptible to losing business to Europe is LCH, a division of LSE that is home to more than 90 per cent of cleared trades of interest-rate swaps.
At the end of last year, Union Investment, Germany’s third-biggest fund manager, became the first finance firm to announce that it would shut its existing swap positions at LCH and recreate them at Eurex Clearing in Frankfurt. Although LCH has been granted a 12-month reprieve to continue clearing swaps for EU customers in the event of a no-deal Brexit, Union could be the first of many to make the move.