Christmas hasn't come yet, but for many in the City of London last week's resounding Conservative victory felt like the kind of gift that sparkles the whole of the following year. Jeremy Corbyn's anti-finance message has been kicked into a corner and the political stasis has been broken. "Finance values certainty," says former Goldman Sachs partner Bobby Vedral. The country is categorically blue.
Certainty means that clients in areas like M&A and equity capital markets can make plans and start doing deals again. "This year, U.K. M&A was down 50% on last year because of all the uncertainty," says a managing director in one European bank in London. "Our internal view is that this election result will be very good for us in the short term and that next year will be much better than 2019."
The optimism around dealmaking coincides with an improvement in global sales and trading revenues. Last week, JPMorgan said its trading revenues will be, "up meaningfully," year-on-year in the fourth quarter, Bank of America said its trading revenues should be up 7-8% in the same period and Deutsche Bank said it's experiencing "healthy double digit growth." The fact that the fourth quarter of 2018 was dire makes for an easy comparison. But still - after a year in which banks have announced 60,000 redundancies, the mists may be clearing.
Sensing a flash of blue sky, some London banking recruiters are already getting into their Speedos. "Desks are so thinly staffed that it won't take much to start hiring again," says one macro headhunter. Zaki Ahmed, at equities headhunting firm Financial Search, says hiring should be "big" next year: "People have been sitting on a lot of money because of the uncertainty. Now that we know where going to go, they will start spending again. The IPO market will restart - deals can be done and I expect big hiring, I absolutely do. There will be a bounce."
The only issue with this exuberance is, of course, Brexit. Under Johnson's proposed deal banks will lose current passporting rights and will be compelled to operate under EU 'equivalence' at the end of the transition period in December 2020 if they want to access clients in Europe. Equivalence, however, presumes that the UK adheres exactly to EU rules - something that the new government is already rejecting as the de facto arrangement. Some, like Michael Spencer, the founder of ICAP are calling for the EU bonus cap to be scrapped in London. This might be nice if you want a big bonus, less so if you want to service European clients out of Canary Wharf.
Brexit has the potential to tilt the election halo. A couple of months ago, thinktank New Financial updated its prognosis on banks' intended movements after Brexit. New Financial said Paris was pulling away from Frankfurt as banks' favourite location. Some, banks like Citi, have been forced to have a bigger presence in the French capital after staff rebelled at the prospect of being sent to Frankfurt. Others, like Goldman Sachs, plan to give staff both transfer options. "I can imagine that many Americans would prefer living in Paris than Frankfurt for various reasons,” said former Goldman CEO Lloyd Blankfein a few years ago.
One MD and business head at a U.S. bank in London tells us that after an 18 year career in the City he's off to Paris in 2020. "I bet on Paris as major financial hub over other cities in Europe post-Brexit," he says. "Initially, I suspect Paris will take the majority of Brexit front office staff - most of the continental sales force and roughly 20% of trading, across most major banks."
He may be right. As recently as the summer, banks were complaining that clients were unwilling to place trades through their European hubs. But that could change now that Brexit is 'getting done.' It could also change if European regulators take a harsher approach to the sort of 'back-to-back' trades that allow trades to be booked in Europe but the risk to be managed in the City.
While trading jobs face an uncertain future because of Brexit, the M&A bounce may also prove more dead cat than tennis ball. The same M&A managing director who says things are looking up in the short term is less ebullient for anything after that. "The M&A market in Europe hasn't grown since before the financial crisis, I don't see this changing anything." Equally, he says Brexit could be detrimental to activity in some markets: "You don't want to be working in a sector that's reliant on just in time European supply chains."
While the election result might provide a short term fillip, the MD suggests that the certainty-effect won't endure. But then he didn't vote for Johnson. "I woke up on Friday morning feeling utterly depressed. I was hoping for a hung parliament.
"Our financial sector relies on being able to access European markets and we don't have an agreement on that," he adds. "We will either see a dramatic shift of personnel out of London, or a slow drift away of people in certain sectors." Don't count on a bumper 2020 yet.
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