As of this morning, Britain is one step closer to having a new prime minister, and that prime minister will almost certainly be former Conservative home secretary Theresa May. Unless, of course, Michael Gove (who dropped out last week), makes a comeback, although Tory party election rules don't seem to allow for that.
What will a May premiership mean for Britain's banking district? Based upon her utterances so far, we'd suggest the following.
1. There will not be the non-Brexit expected by Jamie Dimon
As the Financial Times noted at the weekend, U.S. elites are having a hard time getting their heads around Britain's binary Brexit referendum - it's just not how American politics works. This might be why Jamie Dimon told Bloomberg last week that the UK could always go back on the Brexit vote.
A May premiership would put an end to this sort of chat. "Brexit means Brexit," May wrote in The Sun yesterday, "There must be no attempts to remain inside the EU, no attempts to rejoin it by the back door and no second referendum."
Everyone at least knows where they stand. Unfortunately, the new clarity may encourage the likes of J.P. Morgan to stop thinking wishfully and start making some firm arrangements for moving "thousands of jobs" out of the UK and into mainland Europe.
2. Straightforward 'passporting' is probably not an option.
May is notorious for taking a hard line on immigration. In October 2015, she made a speech at the Conservative Party conference in which she argued the case for strict limits on immigration, including tighter controls on students who stay in the UK when their visas run out. She reiterated this stance in The Sun at the weekend, writing: "The Government will be able to do more to control immigration to Britain from other European countries."
As Deutsche Bank analysts noted last week, a hard line on immigration is not compatible with the persistence of passporting rules. Passporting rules allow banks regulated in the City to do business in mainland Europe. Without them, London-based banks are more likely to open fully licensed offices in Europe - and probably to shift some staff there.
For passporting to continue, the UK would need to participate in the European Economic Area. However, participation in the EEA usually requires countries to accept the free movement of people. Hence, the problem.
If passporting goes, London banks could always try the 'Third country regime' option, but as Deutsche's analysts pointed out, this isn't exactly ideal and will lead to more uncertainty. Banks might just start moving jobs out of London anyway.
3. May will push for the best of both worlds for the City in trade negotiations
Like Boris Johnson, May wants to have her European cake and eat it. Barclays' analysts note that she wants to end the free movement of people AND to make it a priority to "maintain free trade of goods and services between the UK and the remain EU member states." In this sense, Financial News notes that May is going for the 'Brexit lite' option favoured by banks: full access to the single market, along with a quota or points system to control immigration.
Historically, as noted above these two things have been incompatible for the European Union. If May is to succeed, she will need some formidable negotiators on her side. Will banks wait around?
4. There will be no guarantee that Europeans already in the City will be able to stay
What about the many thousands of EU nationals working in the City? In sectors like M&A and research nearly half the staff in London are EU nationals.
Unfortunately, May doesn't offer any easy reassurances. Barclays notes that her stance has been to refuse to recognize the rights of EU citizens in the UK unless the EU recognizes the rights of UK citizens in the EU. Stalemate.
5. There won't be higher taxes, but there will be greater focus on the poor and a symbolic clampdown on high pay
Ultimately, a May government may see an increase in Britain's 45% rate of income tax for incomes over £150k. May's campaign slogan is 'A country that works for everyone" and she tweeted that, "There is a gaping chasm between wealthy London and the rest of the country."
For the moment, however, Barclays notes that May has disavowed tax rises. And yet, she's also promised to drop the previous government's commitment to a fiscal surplus by 2020, suggesting that something may need to be done. Financial News suggests May isn't that economically savvy: she once asked a senior Treasury official to explain the difference between the structural deficit and the deficit.
May has also promised to crackdown on high pay by making shareholder votes on executive pay binding. This won't be an issue for American banks in the City, but could cause minor headaches for RBS and Barclays.
6. There will be a longer period of uncertainty
Although May as prime minister would end the deep uncertainty that comes from having no government, she wouldn't end the uncertainty for the City of London.
In fact, she might protract it. Whereas her failed contenders for the Conservative party leadership had promised to trigger Article 50 in September (Andrea Leadsom) and before the end of the year (Michael Gove), May has said she won't triggering it before 2017.
This might be a good thing. The Financial Times suggested recently that the UK should delay triggering Article 50 before 7 May 2017 - the day of the second round of the French elections. If it triggers it before, the FT said France will have more incentive to worsen the UK’s plight to discourage its own leave voters from supporting Marine Le Pen. Then again, as a banker working in Hong Kong wrote earlier, "For how long will the U.S. banks operating out of the UK be able to say to their shareholders that they’re just “waiting to see” what happens with the UK’s negotiations to leave the EU?"
Photo credit: Home Secretary Theresa May by U.S. Embassy London is licensed under CC BY 2.0.b