Paris Eyes Luring 20K Bankers from London Amid Brexit Rupture
bloomberg.com
bloomberg.com
I wouldn't think that would be a big draw for finance types, especially when there are other markets in the EU that seem like they would be more tax friendly (Ireland, Luxembourg, Switzerland, Frankfurt), while still being close enough to other centers of power.
Maybe there's a "management class" distinction?
Not to mention, France is increasingly an outlier in Europe with a punishing corporate income tax rate (33%). Most of their European competitors have been slashing that rate the past decade plus: Netherlands 25%, Spain 25%, Austria 25%, Sweden 22%, Denmark 22%, Portugal 21%, Finland 20%, UK 20%, Iceland 20%, Czech 19%, Poland 19%, Switzerland 17.9%, Ireland 12.5%. The average across Europe is about 20%. Why would an international bank want to be there, except for local French business purposes?
Can you elaborate on the bad labor laws?
But I only have a small experience of the consequence of our current labor laws (which are very hard to change, the current gov tried last year and got massive protests for their trouble).
Edit: Also the employment taxes (the one paid by employers) are very high in France (half of the salary +/-).
Only Frankfurt and London are at a similar level as Paris in the EU for banking today, and if London ceases to be a viable alternative (due to passporting etc. post brexit), then Paris will end up taking a lot of that business for the simple reason labour laws and taxes are not the only things the banks need to care about, but also where their employees are willing to live and work.
My ex works in HR at executive level at a major investment bank. French labour laws etc. never comes up when they consider where to staff up/down (and they do continuously). As for corporate taxes, no investment bank has a problem finding schemes to shift profits around.
> They do have a lot of bad labor laws and quite high taxes, both of which have contributed to France having a very stagnant economy (both in terms of innovation and growth) for decades.
Their GDP per capita is largely moving in lockstep with the UK and Germany, despite far fewer hours worked per year for the average French worker. As it turns out there's very little evidence that these "bad labour laws and quit high taxes" have much impact on growth.
> Not to mention, France is increasingly an outlier in Europe with a punishing corporate income tax rate (33%).
In line with Germany.
> The average across Europe is about 20%. Why would an international bank want to be there, except for local French business purposes?
They are already there for purposes other than "local French business purposes". Many international banks have similar numbers of staff in Paris as in London.
Hilarious. Did you know that London is the 7th largest French city? Those people are not here for the weather. And Frexit is not off the cards either.
The bank my ex works at has as many traders in Paris as in London, for example, and that's fairly common.
I don't doubt there are many French traders in London - these banks shifts staff and roles around as if they're commodities. But that doesn't change the fact that Paris has a large proportion of the EU financial industry. Not as large as London, but substantial enough for Paris to be a major financial centre.
If London finance is 5 times Paris. It's enough to make it a major financial center yet it's laughable at the same time.
It's not a question if banks will move some portion of staff out of London, but how many and where they go.
London does have more than Paris, but Paris and Frankfurt are the only two other EU cities that consistently get listed amongst the top global financial centres.
What exactly that means in hard cash depends on what you want to count and how, and so the rankings vary greatly depending on who you ask.
Still no sign of movement.
The French consulate publishes inflated estimates without evidence for obvious self-serving reasons, but verifiable data from the ONS is singnificantly lower than that.
Le Monde's estimate, also given in the article and based on a comparable INSEE data would make it 23rd.
Repeating ad nauseam the unsubstantiated claim that it's the 7th largest French city when all evidence suggests it doesn't even make the top 20 is not a worthwhile contribution to this discussion.
> In line with Germany.
The problem in France is not corporate income tax, as some huge companies do not pay that tax with creative but perfectly legal accounting. The problems are with the "taxe professionelle" which is not based on revenues and the taxes on labour. If some employee receives 2000 euros, usually the company has to provision 3000 to 4000 euros. Most of those labor taxes go to the social security organism which has a budget as large as the state budget. (Edited for grammar and clarity)
The "Taxe professionnelle" was abandoned in 2010/2011.
https://fr.wikipedia.org/wiki/Contribution_%C3%A9conomique_t...
This is similar in the UK with employers national insurance contributions.
Total tax wedge in France is higher than the UK and higher than the OECD average, but still in line with Germany according to the OECD [1], just as I stated. Note that the OECD tax wedge data covers total cost paid by both employees and employers.
Wrong. With the exception of the French banks Natixis, BNP Parbias and Societe Generale...Investment banks have far greater staff in London vs Paris.
[1] http://www.ccomptes.fr/Publications/Publications/Les-preleve... (in French)
"In bank-based financial systems such as Germany and Japan, banks play a leading role in mobilizing savings, allocating capital, overseeing the investment decisions of corporate managers, and in providing risk management vehicles. In market-based financial systems such as England and the United States, securities markets share center stage with banks in terms of getting society’s savings to firms, exerting corporate control, and easing risk management." [1]
France is a bank-based economy. Britain is market based. London's financial dominance pre-dates the EU for good reasons.
[1] http://documents.worldbank.org/curated/en/259341468739463577... Introduction, Table 11, Table 12
Postscript:
"• In higher income countries, stock markets become more active and efficient relative to banks. There is some tendency for national financial systems to become more market oriented, as they become richer.
• Countries with a Common Law tradition, strong protection of shareholder rights, good accounting regulations, low levels of corruption, and no explicit deposit insurance tend to be more market-based.
• Countries with a French Civil Law tradition, poor protection of shareholder and creditor rights, poor contract enforcement, high levels of corruption, poor accounting standards, restrictive banking regulations, and high inflation tend to have underdeveloped financial systems." page 5
Lets first have a look where Common Law exists [1]. OK, that's pretty easy: It is FVEY plus some islands.
Now lets have a look at the Corruption Perception Index [2] (alternatively, just check the picture at [3]). The UK and US are at place 12 and 17 respectively. The top 10 is comprised of: Denmark, Finland, Sweden, New Zealand, Netherlands, Norway, Switzerland, Singapore, Canada, Germany. I count 2 common law (New Zealand, Canada), and at least 7 Civil Law (I'm not including Singapore because I don't know what kind of law system they have; the list is including that pesky Germany who according to your source have high corruption). I fail to see your pattern.
[1] https://upload.wikimedia.org/wikipedia/commons/9/92/Map_of_t...
[2] https://en.wikipedia.org/wiki/Corruption_Perceptions_Index
[3] https://upload.wikimedia.org/wikipedia/commons/b/b4/Transpar...
London bankers' skills are unlikely to efficiently translate to Paris. Moreover, Paris can support less financial activity for having a bank-based economy--banks can't process at the throughputs markets can.
> I fail to see your pattern
The paper considers more than ten European countries. I included the postscript because I found it interesting, not because it's particularly germane to the article topic.
I'm not saying Paris isn't a financial centre. It's just in a different league compared to London, NYC, Singapore, Hong Kong or Tokyo.
> The physical location of the trading desks relative to the markets matters little
Making markets requires plugging into financial and political power structures. Due to home-country effects, buyers and sellers of a security tend to congregate around the issuer.
A Singapore desk will hand off to New York to execute an order by a Singaporean buyer and American seller. Note: we're not talking about hedge funds. We're talking about investment bankers, sales-traders and market makers--relationship-driven businesses.
That's true. But the point here is that a lot of London's banking depends on unfettered access to the EU markets, and so the question is not "which city", but "which city in the EU" will take over once the UK exits the EU.
> Making markets requires plugging into financial and political power structures. Due to home-country effects, buyers and sellers of a security tend to congregate around the issuer.
That matters for some roles, but certainly not all. But this same arguments also is part of the exact reason why the UK faces an onslaught post-Brexit.
I replied because I saw your quote contained a possible inaccuracy. When I investigated that specific part, I found contradicting proof of a causal relationship between French Civil Law tradition and corruption. Which is what your quote was implying. I didn't attempt to verify anything else, but I'm highly skeptical.
Either that, or I read wrong and what is being implied with:
> Countries with a French Civil Law tradition, poor protection of shareholder and creditor rights, poor contract enforcement, high levels of corruption, poor accounting standards, restrictive banking regulations, and high inflation tend to have underdeveloped financial systems.
(Emphasis mine.)
is that these are all requirements due to and.
Which further is suggested by the quote hereunder that countries with high income such as France, Germany, and Benelux (all of which are original members of the EEC/EC) are not meant to be included in the list you mentioned.
> In higher income countries, stock markets become more active and efficient relative to banks. There is some tendency for national financial systems to become more market oriented, as they become richer.
But hey, if you want to prove your point feel free to prove -with sources- France, Germany, and Benelux each have:
* Poor protection of shareholder and creditor rights
* Poor contract enforcement
* Poor accounting standards
* Restrictive banking regulations
* High inflation
The paper divides economies into three buckets: market-based, bank-based and underdeveloped. It does this by looking at economic factors. It then looks at what other factors, Y, are similar between countries in each bucket. This doesn't work going backwards.
By analogy, suppose I have circles, squares and triangles in blue, green and orange. It is meaningful to group by shape. It may also be meaningful to observe that 90% of the triangles are blue. It does not follow that a random blue shape is a triangle.
I know it doesn't because the paper is linking certain properties it observes without proving the causation, and then tries mention them as if they're relevant while in reality there's no relevance shown.
(For example, an alternative plausible explanation could be a relation between corruption and wealth.)
> By analogy, suppose I have circles, squares and triangles in blue, green and orange. It is meaningful to group by shape. It may also be meaningful to observe that 90% of the triangles are blue. It does not follow that a random blue shape is a triangle.
Imagine shapes and colours can change, and there's no proof the change is related to the shapes or colours. Imagine the conclusion for the 'blue' is 'beautiful'. Does it then matter to mention that the blue ones happen to be 'beautiful' and 'mostly triangles'? Is it a relevant conclusion that the 'non-beautiful' are 'mostly not triangles' or 'that they are not beautiful because they're mostly not triangles'? The latter is what your quote implied, and its merely suggestive. You have no proof.
Because correlation is not causation. So why does the paper mention it? If you're not willing to prove the missing point, why do you quote it?
But how come (French) Civil Law is to be 'a bug'? To me Civil Law seems superior, because it tends to make law more codified and less informal. In return it seems to be more affordable for the masses. If you're considering where to locate your startup for example, the differential in litigation costs between UK and Germany is said to be 3 to 1. But really, I'd like to know what you think.
The paper divides economies into three buckets: market-based, bank-based and underdeveloped. French Civil Law is found in a disproportionate number of underdeveloped economies. I suspect this has to do with France's colonial traditions more than the merits of civil versus common law. (Based on what I've read, both legal systems have produced advanced, albeit structurally different, economies.)
[1] https://en.wikipedia.org/wiki/Common_law#/media/File:Map_of_...
[2] https://de.wikipedia.org/wiki/Common_Law#/media/File:Common_...
Which kinda summarizes the facts this is based upon.
Passporting doesn't require moving your employees wholesale, you just setup a subsidiary within Europe and trade with that legal entity for European trades. A skeleton office is all that is required.
Source: an ex that is currently processing staffing numbers across EMEA for a major international investment bank.
Frankfurt is too small to subsume most of this business because of a difficulty getting staff that is willing to work there, and Amsterdam has a different focus. Likely they'll all get part of the pie, but that some of it goes to Paris is pretty much guaranteed.
But most major banks have desks both in Frankfurt and Paris already, not just to handle local business but because it's hard enough getting top people to London (my ex even regularly tells me of her frustrations of dealing with offices in certain countries that exists solely because a single hotshot trader prefers a certain city over one of their big centres and brings in enough business for it to be worth a whole support staff to keep them happy) and so most of these banks needs presences in lots of places to be attractive.
If you don't have a presence in Paris and your competitor does, you're going to lose a sufficient portion of high-value traders to competitors over it for it to be an issue.
Frankfurt is no London and no Paris, this is clear. However, that's also related to the way in which Germany as a whole functions. The individual cities aren't all that big, but they are clustered in metropolitan areas.
If you live in the vicinity of Frankfurt, you can just drive to Heidelberg for a Saturday night out (about an hour). Or, if you're more interested in food, theater or classical music, you have a large selection from Mainz to Aschaffenburg, all of which is easily reachable from Frankfurt.
Equally, the pool of support staff you can draw from isn't recruited from the minuscule population of Frankfurt (700k), but from the whole metro region (5.5 million). I myself live at the outermost boundary of the metro region and know many people who commute to Frankfurt.
The second point is that the relatively small size of the city of Frankfurt is an asset in one critical regard: Frankfurt is first and foremost a banking city (and secondly an airport city). If banks want to exert some influence over policy there, they have all the leverage they could want. This is not the case in Paris.
Personally, I'd be surprised if there was anything other than a somewhat even split of relocations between Frankfurt and Paris. And I'm fairly certain that the TGV service between Frankfurt and Paris will also be extended beyond what exists today.
One big advantage of Frankfurt is that Germans are much more open to speaking English than the French, and this is an advantage that should not be underestimated. If you don't speak German, but do speak English it's possible to live in Frankfurt. To live in Paris, you have to speak French.
Only Amsterdam (which has English as its official language next to Dutch) is better in that regard. In Amsterdam you don't even have to ask if someone speaks English (that's considered an insult, on the same level of asking someone whether they can read and write).
I also have had first hand experience of staff at establishments in Paris simply refusing to speak English. All in all if I had to choose as a Londoner I would prefer to move to Frankfurt or Amsterdam over Paris any day of the week.
I speak French, but not that well. First time I went to Paris ('94) it was indeed close to what you suggest, but my French-teacher was right about one thing: As long as you got the pronunciation right and tried people would fall over themselves to try to help you.
Last times I've been in Paris, on the other hand, people would impatiently interrupt me when I tried to practice my French, and switch to English. It was outright annoying, as it made it hard to improve.
The most inconvenienced I've ever been was in some little village in Provence a couple of decades ago, when a shopkeeper didn't understand my French. But he proceeded to stop random passers-by until he found one that was willing and able to translate.
That's the same everywhere. London is a cluster. My suburb of London itself has about a dozen town centres.
> Frankfurt is first and foremost a banking city (and secondly an airport city)
That's great for employers, awful for employees.
> If you live in the vicinity of Frankfurt, you can just drive to Heidelberg for a Saturday night out (about an hour)
Driving for an hour is not attractive for going out whe working long hours. This is why you see bankers paying millions of pounds for small flats in London Docklands so they are close to both work and nightlife. People who are used to walking distance or a few minutes on the underground to get to work and the same to get to restaurants and nightclubs are not going to be impressed by an hour to get someone interesting.
> Equally, the pool of support staff you can draw from isn't recruited from the minuscule population of Frankfurt (700k), but from the whole metro region (5.5 million).
Nobody cares about the support staff. They're easy to hire and cheap. The banks cares about the traders they pay a million plus in base salary and similar levels in bonuses. If they are willing to move to Frankfurt, the banks will go there. If they say "no, I'll just go to bank Y instead - they have an office in Paris," the banks will go to Paris.
As I've mentioned elsewhere, the bank my ex works for maintains several offices because of individual traders that insist on living in specific places and who bring enough business to justify it.
> If banks want to exert some influence over policy there, they have all the leverage they could want. This is not the case in Paris.
Banks have plenty of leverage in London, which is much larger than both Paris and Frankfurt combined. If anything they will have more leverage in Paris because Frankfurt is real competition for Paris in a way neither Paris or Frankfurt has been for London.
But generally, Frankfurt is perceived very well. Less hostile towards non-French speakers than Paris (subjectively), less remote than Dublin. It's a very small city, but you're quickly in Munich/Berlin/Cologne, which helps.
that's objective, germans generally are more keen to speak with foreigners in english than french, no matter their level
It differs, in generally people either speak it there, and then do so reasonably, or they absolutely don't speak it, not a single word.
This is quite different in The Netherlands. In Amsterdam people in shops etc will often address you in English and are rather fluent, but even in the most remote villages of the Dutch countryside everyone speaks some amount of English. It may be with a very heavy accent and not fluent at all, but generally it's enough to at least have a basic conversation.
If I recall correctly, I believe Faroese might be the closest (depending on how you classify Scots).
One the closest indeed, although Frisian is technically even closer. If I'm not mistaken it's really quite close to old English, but a modern English speaker wouldn't be able to understand it at all ;)
That's important. The French tend to be happy to accommodate, but there's something about making it clear that communication is a mutual effort. If you try in French first, it indicates that you want to work with them rather than assuming that they should kowtow to your preferences.
At least in private equity and the related leveraged loan, structured product and similar work, New York is taking the lion's share of formerly British bankers' business.
Frankfurt and Amsterdam are nice cities, but why wouldn't talent prefer first-tier ones? Why not go to NYC, Singapore or HK?
Why not go to NYC, Singapore or HK?
For this very reason Zurich (which is arguably the center of private banking) is out of the race. Switzerland is not an EU country.
It's a failing strategy, long term. Can the EU "attract" employers by making it illegal for them to sell without physically being there? Sure, but that's kind of the opposite of trade.
Note that the EU has already tried to force this business out of the UK even before Brexit. The UK Government took the Commission to court and pointed out that their new regulations blatantly violated the EU's own commitments around discrimination, and won.
http://www.wsj.com/articles/u-k-wins-court-case-with-ecb-on-...
The EU is no friend of the UK, or bankers. They see finance workers as resources to be fought over and pumped for tax revenue, nothing more.
Ultimately, if a branch of a company isn't in a jurisdiction which follows EU/US/Japanese law it can't expect to represent itself as a EU/US/Japanese branch and expect to do the same paperwork as an EU/US/Japanese branch. The innovation with passporting was entirely around assuming that your French or Estonian branch didn't need to do special Italian paperwork or set up an Italian subsidiary because they all sat under the same jurisdiction following the same regulations anyway. If you insist companies based on your territory should be free to not comply with EU regulations, you can't expect that same rule to continue applying
http://www.cnbc.com/2016/07/07/theres-a-little-known-eu-rule...
So your statement that such companies "can't expect" is wrong - in fact they can expect that, because the EU already committed to it.
This is posing a big problem for the EU right now because obviously on the day of exit the UK would still have an "equivalent" regime, so there'd be no grounds to force bankers to relocate. The details of MiFiD II were handled by technocrats whose brief was just to make trade easier, so such rules make sense: if the two regimes are close enough, why insist on EU membership?
Nobody realistically expects the EU to stick to their own rules though. The EU never lets written law trump political demands. Just look at the Euro bailouts if you doubt that.
Banks operating in both countries can of course gradually shift more work towards the NYC office, but I don't think that many companies are looking to relocate whole departments there.
That's not what's happening. The top performers are moved, middle- and low-level staff in London released and new staff hired in New York. A handful of middle managers may be moved or hired in Paris or Frankfurt or Amsterdam, as a conduit, too.
Clients are also shifting. The amount of first-time business I am personally seeing from new European clients, who need a considerable amount of help adapting to New York's more direct banking culture, has us hiring frenetically (though locally).
I don't doubt that NYC will profit from Brexit, but I think it's more in an indirect way (as you describe) and the generally better economic environment in the US at the moment, not through relocation.
As a side note, some banks use the Brexit discussion to move back office functions to Eastern Europe, hoping that they can sell it as a Brexit consequence and not as offshoring.
well, that would be conditional on Brexit, right?
And while it's a natural move by an American bank to move jobs to the US, it's much less clear for the rest of the sector.
Most London-based PE houses have offices in other European capitals (Paris, Milan, Munich, Madrid, Stockholm, etc). Just take a look at KKR, Cinven, PAI Partners, CVC, Apax, Carlyle, etc, offices location around Europe.
Additionaly, most active banks have lev fin / acquisition finance teams in other European cities other than London (e.g. SocGen in Paris, BNP Paribas in Paris, DB in Frankfurt, Unicredit in Milan, Santander in Madrid, BBVA in Madrid, etc).
Should London be worried? Yes. Is the threat coming from the US? No.
I thought the entire point of moving was to benefit from EU passporting - so moving from London to NY, even post-Brexit, would not help with that.
The EU is supposedly a union of equals. In reality it isn't. It's run by and for the benefit of the original founding countries, in particular, for France and Germany. That's why the UK leaving is not seen as a threat to the EU's existence but France leaving is, even though in many metrics they're comparable countries.
Of course Amsterdam has the same issue. The country's politics are in some ways more volatile than the UK. The most popular politician there strongly dislikes, maybe even hates, the EU. Whenever this comes up I tend to see Dutch people online saying things like "well it could never happen here because" followed by some explanation of how European moral superiority ensures that even if anti-EU candidates come first in elections nothing will ever change, as everyone else will unite in opposition, which isn't very convincing to put it mildly.
Also bear in mind that we're talking about the eurozone here. Some countries have populations flirting with the idea of exiting the euro but not the EU. I suspect if one tries it they will discover they are fully under the control of the EU and are simply told that their votes will be ignored. It happens all the time in Europe.
Political pressure in Europe is building and there doesn't seem to be much of a release valve: in a well functioning democracy you would see other politicians react to a popular upstart by co-opting some of their policies, but that doesn't seem to be happening much (except maybe in France a little bit?).
That makes the probability of France leaving the EU large than that of other european countries, though obviously still super small.
But we've had already a couple surprising voting results in the world stage recently right? So better be wary.
Also, Marine Le Pen (FN) may make it to the final round in the April/May election, but I don't think any poll sees her winning that round (I know, polls, Trump... touch wood!)
However I really can't see the financial institutions of London choosing Dublin over somewhere like Frankfurt or Amsterdam.
The #1 reason bankers will shift will be due to 'passporting' issues - banks will require EU based personnel for legal reasons. In this case, I think it's easiest for London banks just to have staff in the easiest and most accessible place: Dublin.
Other than that - I don't see the reason why any jobs at all would go to Europe.
If they can do it from the UK, they will do that.
There is no growth in Europe, it's all in Asia.
Now - I believe the EU is trying to pull some Euro currency exchanges and clearing from London, in which case, there might to be another 'regulatory' reason to switch some people over.
But I think this is overblown. There's nothing pretty about banking in the EU.
London has not become more attractive because it's without EU regulatory limitations - and - they'll have considerable leverage with Theresa May etc. to win more concessions to make it even more competitive.
It's entirely plausible that there are even more banking jobs in London after this is all settled.
I said London City is going to win concessions from May in order to want to keep financial services in London.
edit -spelling
Arguments about foreigners taking our jobs are obverblown. Take Britain as an example. Through tour historic trade networks, commonwealth links and EU membership we a major free trade powerhouse. So have all our jobs gone to China? No, our unemployment rate is near historic lows and our employment rate - the percentage of the population in work - is the highest it's ever been since it started being tracked in 1972. Compared to what life was like in my childhood in the 70s most Britains are fantastically better off. Our city centers and public facilities have been transformed. Foreign travel for leisure, once the preserve of the wealthy, is within reach of most of the population. My wife in Chinese, I've been going there since 2001 and that country is almost unrecognizably better off thanks to Globalization.
I've seen both sides of the globalization equation up close. It's the most powerful force for good the world has even seen, flooding our markets with cheap consumer goods and low cost luxuries (I'd never seen a Mango in my childhood, now you can buy a box of them for £2 in the London markets in season) while lifting millions of people out of grinding, abject poverty.
Uh... No? If I pay you, it's because you have something I need. I'm not giving you that money because I think it has less worth than what you're giving me in exchange, I'm doing it because that's the price.
As far as UK unemployment goes, a huge part of that low percentage is due to zero hours jobs. Just because people are not registered as seeking a job doesn't mean they're better off. It's exact same scheme as Germany, and while unemployment goes down, the percentage of people with a job yet under the poverty line grows almost proportionally.
So you value it more. It has more utility to you. You are better off with it than with the money.
If the government can "manufacture" utility like this, it isn't utility.
Driven or been driven on any roads lately? Bought any goods transported on public infrastructure? Etc. I'm lost. I've no idea what you're really arguing at this point.
In a democracy, "the government" is a reflection of the will of society, however imperfectly expressed. Paying taxes is as social obligation with known consequences for failure to comply (in this case, the threat of confinement).
As a parallel example, perhaps I have a housemate who gets upset when he finds dirty dishes in the sink. So I take care to clean dishes when I use them-- perhaps not because I particularly care if there are dirty dishes in the sink, but because it upsets my housemate. Again, to prevent myself from accruing the negative utility that comes from failing to meet a social obligation.
It has the exact same utility to me. Unless somebody is running an operation to get total control of what I'm looking to buy, I'm pretty guaranteed to be able to get it if I have the money. It is nothing more than an convenient way of exchange
> is the highest it's ever been since it started being tracked in 1972
Can you prove that globalization is the cause of all the improvements? The fact you'd never seen a Mango before is probably due to transportation technology/infrastructure improvements, for example.
"low cost luxuries" aren't necessarily sustainable so, and seem to depend on labor-cost disparities.