Britain’s financial sector reels after Brexit bombshell

By Sinead Cruise, Andrew MacAskill and Lawrence White

LONDON (Reuters) – Britain’s 2.2 million financial industry workers face years of uncertainty and the risk of thousands of job cuts after the country voted to quit the European Union, an upheaval that threatens London’s dominance of finance.

The ‘Vote Leave’ campaign fronted by a slew of Conservative lawmakers and financial industry veterans claimed victory over its ‘Britain Stronger in Europe’ rival, after 52 percent of Britons voted to support their plan to leave the 28-nation club.

The news hammered the stock values of banks from mainland Europe to Wall Street giants with large operations in London, pushing job security fears to levels unseen since the financial crisis of 2008.

Some of Europe’s top lenders, from France’s Societe Generale to Britain’s Lloyds, saw one fifth wiped off the value of their stock. Shares of elite wealth managers Schroders, Aberdeen Asset Management and St. James’s Place fell sharply.

The referendum outcome casts uncertainty over the future of Britain’s financial services industry and its ability to sell products into the European Union.

All depends on the divorce between Europe and Britain, and the latter’s ability to retain access to the European free market.

European government officials had said UK-based firms could lose these privileges after Brexit, a move that could prompt banks to shift some of their operations to Frankfurt, Paris or Dublin if they want to serve EU clients.

The mood in the restaurants and coffee shops in the high-rise banking hub of Canary Wharf, home to JPMorgan, Citi, HSBC and Barclays, was sober and contemplative.

Investment banks have already warned they could move thousands of jobs if Britain opts out of the EU, while the European Central Bank has signaled it could force euro trading out of London, the world’s largest foreign exchange market.

Some sought to play down fears of a hit to Britain’s banking sector, pointing to contingency plans and experience navigating crises.

Goldman Sachs Chairman Lloyd Blankfein and Jes Staley, CEO of Barclays – which suffered the biggest one-day fall in its share price on record on Friday – said they would work with the authorities as the terms of the exit become clear.

HSBC Chairman Douglas Flint described work to establish fresh terms of trade with European and global partners “as complex and time consuming”.

Wall Street bank Morgan Stanley said the significance of the decision would not be known for some time.

A person familiar with the matter earlier told Reuters the bank could move roughly 1,000 of its 6,000 employees currently in Britain to elsewhere in Europe if Britain quit the EU.

Jamie Dimon, CEO of rival JPMorgan, told staffers his bank may need to make changes to its European legal entity structure and the location of some roles to comply with new laws, casting a pall over its 16,000 strong workforce.

Some bankers advising companies on takeovers and initial public offerings (IPOs) have all but written off big-ticket activity for the rest of 2016, after the outcome poleaxed company valuations and executive confidence.

In Britain’s second-largest financial hub of Edinburgh, the referendum result sparked talk the city could benefit.

“I am already hearing rumors from contacts in London that big financial companies are instructing lawyers to look at Edinburgh as a hub,” said Gordon MacIntyre-Kemp, chief executive of Business for Scotland, adding he expected a fresh Scottish independence vote by 2020.

Nearly two-thirds of voters in Scotland wanted to stay in the EU, and Scottish First Minister Nicola Sturgeon said on Friday a second independence referendum is highly likely. A referendum held in 2014 was narrowly defeated.

However, the City of London Corporation, which oversees the capital’s financial district, said the leave vote should not lead to a major exodus.

The British Bankers’ Association Chief Executive Anthony Browne reassures people that banks across the country would be operating as normal on Friday.

“People will be able to take money out of cash machines,” he said.

JOY AND PANIC

Months of bitter campaigning has left the industry – which earned the nation 190 billion pounds ($260 billion) in 2014 – divided, with investment banks and insurers pitted against many fund managers and brokers who wanted a Brexit.

Property investor Richard Tice, a co-founder of Leave.eu, a British Out campaign, and one of the few prominent City figures in favor of leaving, told Reuters he cried tears of happiness after the vote.

“There is huge joy, delight and pride. We have changed the course of history in the UK. It is very simple, everyone needs to calm down and do what we do well which is working and playing hard.”

But there was little of that joy in trading rooms.

Sterling fell to its lowest level since 1985, the year before Britain’s deregulation of financial markets that helped propel the City of London into one of the world’s major financial centers in the so-called ‘Big Bang’.

“Leave’s victory has delivered one of the biggest market shocks of all time … Panic may not be too strong a word,” Joe Rundle, head of trading at ETX Capital, said.

Sources at banks said memos emailed internally to rattled employees advised them to think about clients first.

“…The juniors are freaking out. I will tell them to focus on their job and wait for the volatility to pass but the reality is much, much starker, we’ll have a crash and big layoffs,” a senior investment banker at a U.S. bank told Reuters.

The Bank of England said on Friday it would take all necessary steps to shield Britain’s economy from the shock decision.

Some commentators said the volatility would be temporary and would soon subside when international investors drawn by a fall in sterling began to scour financial markets for bargains.

The turmoil handed a windfall to some. Crispin Odey, a billionaire hedge fund manager who backed the Brexit campaign bet on a fall in financial markets and told Reuters: “I think I may be the winner.”

(Additional reporting by Carmel Crimmins, Richard Leong and Olivia Oran in New York, Vikram Subhedar, Freya Berry, Simon Jessop, Anjuli Davies, Carolyn Cohn, Maiya Keidan and Huw Jones in London; Editing by Rachel Armstrong, John O’Donnell and Susan Thomas)