JP Morgan last week opened a shiny new trading floor in central Paris and expects to have 800 staff in the French capital by the end of next year, three times its level before Brexit, as US banks step up relocation and hiring of staff in the EU.
Brexit has driven the increase, although bankers said it had also been fuelled by a “localisation” push in recent years, where banks want dealmakers to be closer to clients. That has seen more bankers put in offices such as Milan, Madrid and Stockholm – echoing a trend seen in the US and showing it is not just a Brexit factor. Still, it only partially reverses a 20-year trend where bankers have flocked to London from around the EU.
The smaller EU-27 now needs to capitalise on the opportunity and step up progress on capital markets union, bankers and politicians say. There has been a surge in debt and equity capital markets activity in the past year, spurred by the Covid-19 pandemic, and to sustain that in the EU the bloc needs impetus from capital markets union as companies remain overly reliant on bank loans.
Bank loans accounted for 76% of borrowing by companies in the EU-27 and the bond market provided 24% in 2019, financial thinktank New Financial estimated. That is the inverse of the US, where 74% of funding came from the bond market and 26% from bank loans. The balance in Europe has improved in the past decade, but bank loans still provide more than 80% of funding in Germany, Spain and Italy.
“Thank you Brexit. Thank you to this bad decision now we are making more jobs in Paris,” said Bruno Le Maire, minister of the economy and finance for France.
But he said more progress on CMU was needed. “I am fed up with young scientists or technology developers from Europe held back as there is a lack of financing in Europe compared to the US. There is an urgent need to make a breakthrough in the capital markets union,” Le Maire said at a financial conference in Paris last week.
We'll have Paris. And Stockholm
The big five US banks have added more than 2,000 staff in aggregate in the EU since Britain's vote to leave in 2016 forced banks to start reshaping EU operations.
JP Morgan's new seven-storey trading hub in the heart of Paris next to its French headquarters was opened last week by CEO Jamie Dimon, joined by French president Emmanuel Macron, a former investment banker, to make clear the push France is making to lure firms and bankers. The US bank said it had moved 140 employees to Paris as part of its European-wide Brexit strategy so far and expects to have 440 trading and sales staff there by the end of this year, swelled by relocations and local hiring.
Others are also bulking up in Paris and elsewhere. Most are spreading staff rather than choosing one location, and specialty areas are emerging: Frankfurt is attracting banking headquarters and broker/dealers; trading hubs are going to Paris or Amsterdam; asset managers are choosing Dublin or Luxembourg; and insurers have shifted to Dublin.
Bank of America now has about 450 staff in Paris, its EU sales and trading hub, compared to 100 before Brexit. It has also added about 100 staff in Dublin, its EU headquarters, and staff in other cities. BofA was an early mover on its structure and on moving senior bankers, including Sanaz Zaimi, head of global FICC sales, who moved to Paris in June 2018 to also head EU sales and trading.
Goldman Sachs has added about 500 staff in the EU since 2016. It has two main hubs in Frankfurt and Paris, and now has about 300 staff in each. It also has a big hub in Warsaw and has added bankers in locations, including Stockholm, Milan and a new office in Denmark.
Morgan Stanley is in the process of adding about 300 staff in its EU offices, including about 200 in Frankfurt, its EU headquarters, to take headcount there to about 400. It has also added about 50 staff in Paris and other locations. Citigroup already had about 60% of its EMEA staff outside the UK before Brexit, and has added to its ranks in Frankfurt.
The US banks have added staff through a mix of relocation and local hires, and the additions are broadly split. Morgan Stanley, for example, expects a 50:50 split of relocation and local hires.
Bankers said there had been a squeeze in demand for bankers in some cities – and there had been poaching from local banks. But that is part of a generally tight jobs market, including in London, and the fight for staff is even stiffer in the US.
ECB pressure?
Brexit has propelled the increase in EU staffing as regulators have demanded staff are located where risk is based. The European Central Bank initially wanted senior personnel to be present in the EU – meaning many had to move from London – and now wants other risk-taking roles based in the bloc too, such as euro swaps traders.
But the process has been complicated and delayed by Covid-19 and travel restrictions. Bankers said regulators had taken a relatively pragmatic approach, but were getting tougher and they expect the ECB to take an increasingly granular view of risk management at each bank.
The pandemic has made some moves easier, though. Some bankers have opted to move home from London earlier than planned in their career, including to Italy, France and Spain; lockdown has shown remote working can work effectively and encouraged a rethink of work/life balance.
But there are many staff who have been reluctant to move. Bloomberg reported that JP Morgan asked a team of 15 London-based equity derivatives traders to move to Paris, and almost half chose to quit rather than relocate. It said other banks had faced a similar problem.
Still, the trend is clear. “We think that the numbers (moving) will increase significantly in the next few years,” New Financial said in April, when it estimated about 7,400 staff moves or local hires had been made due to Brexit, many at the US banks.
“As EU authorities require more local business to be conducted locally, the numbers will increase further. The key issue is not so much jobs moving from the UK, but future new jobs in the EU that would otherwise have been created in the UK,” it said.
Additional reporting by Christopher Spink