“It’s the British who will lose the most,” Mr. Macron said in a pre-election interview with the global affairs magazine Monocle. “The British are making a serious mistake over the long term.”
Somewhere between one-fifth and one-third of London’s financial undertakings now involve clients based in Europe. Much of this business is dependent on so-called passports that give financial firms in one European Union nation permission to operate in the others. Free of a deal preserving the essentials of passport rights, many of these trades would be effectively illegal. The rules and regulatory proclivities of 27 remaining European Union nations would have to be satisfied.
“I wouldn’t even be able to service some clients, theoretically, once the U.K. exits,” says Jerome Kemp, a New Yorker who is Citi’s global head of futures, clearing and collateral at its London headquarters. “If the client driving the order is sitting in the European Union, then we’ve got a problem.”
Brexit, as it is known, has jeopardized London’s status as banker to the planet. London will surely retain credentials as one of the world’s most important financial centers. Yet it is likely to surrender stature to European competitors exploiting Brexit as an opportunity to capture spoils. It risks losing ground in its obsessive rivalry with New York.
On a recent afternoon at Citigroup’s headquarters, traders sit at banks of computer screens watching prices in markets scattered from Shanghai to São Paulo. One trader monitors the price of crude oil, eyeing a deal for an American refinery in Brazil. Another seeks to divine how stock markets in South Africa and Indonesia will react to higher American interest rates.
A Swedish trader helps a money manager in Paris place a complicated bet that German government bonds will fall.
“There’s about 10 questions that immediately come to mind as to whether we could execute that trade in London after Brexit,” Mr. Kemp says.
Those questions stand to become more abundant as the European authorities mull whether to require that so-called clearing — settling up the money — on trades involving the euro currency take place within the European Union.
Clearing is a crucial part of the work Mr. Kemp’s team handles in London. Trades of derivatives worth about 850 billion euros a day ($928 billion) are now cleared daily in London, or roughly three-fourths of the total for the globe.
Like every bank with a regional headquarters in London, Citi cannot just wait in the hopes that politicians will strike a deal preserving its access to Europe. Banks are already configuring plans to move significant numbers of people to other financial centers within the European Union, ensuring that trading can continue without a hitch after Brexit is complete.
This is a historic reversal for a city that has for centuries functioned as a central artery for finance.
As the seat of a colonial realm stretching from the Americas to Asia, London financed enterprises attendant to empire. Banking operations established by pioneers like Nathan Mayer Rothschild extended credit to shipping ventures that brought back treasure from distant shores.
In modern times, the deregulation of London’s financial markets attracted an influx of overseas banks. As globalization eroded international borders, money washed in from every shore.
Today, nearly one-fifth of global banking transactions are booked in the United Kingdom, most of them in London. About $2.4 trillion in foreign currencies is traded here daily, according to the Bank of England.
The industry employs more than 1.1 million people in Britain, while generating annual revenues reaching 205 billion pounds (about $265 billion).
New York is bigger by some measures, but much of its business caters to the American market. London has become the ultimate international financial marketplace.
Sovereign wealth funds from Asia and the Middle East manage investments here. Russian oligarchs and Saudi princes park fortunes here. China looks to London as a promising place to handle transactions involving its currency.
Brexit will not touch most of this activity. At least one-third of London’s financial industry revenues involve business inside Britain. Another third is tied to the world outside Europe.
But disruption to the European business carries risks. Between 15,000 and 80,000 finance jobs could depart over the next two years, according to various studies. As transactions move, regulators in the new venues are likely to demand a heavier presence of human beings — people to hold accountable should matters go awry. As bankers move, so could accountants and lawyers.
“Everyone is preparing for the worst,” says Davide Serra, chief executive officer of Algebris Investments, a hedge fund he co-founded in 2006. “You will see the emergence of Frankfurt, Paris, Dublin, Luxembourg, Madrid.”
“To the world, London now matters more than New York,” he adds. “In 10 years’ time, New York will matter more.”
The Rise of the City
Looking out from the headquarters of Rothschild & Company, London’s past and potential future are effectively laid out on display.
The building sits on land that once held the home of the founder Nathan Mayer Rothschild. Conference rooms look down on the Bank of England. Across the River Thames, a 95-story, glass-fronted pyramid known as the Shard punctuates the view. It was erected by a consortium of investment funds from Qatar.
Within the original City of London — the heart of the finance industry, known as the Square Mile — cranes sit atop a half-dozen new skyscrapers in various stages of completion. Who will occupy them once Britain leaves Europe?
Nathan Mayer Rothschild saw the beginning. Born into a Jewish ghetto in Frankfurt, he landed in the English mill town of Manchester at the end of the 18th century, intending to buy patterns for his family’s textile business.
He soon sniffed out a better opportunity in the City of London, the warren of streets laid down by the Romans at the lowest crossing point of the Thames. The bounty of empire was landing on the docks — tea from India, silk from China, cotton from the American South. Trade required credit. Mr. Rothschild carved out a niche. He negotiated terms at the Royal Exchange — today, a shopping mall full of Italian luxury goods.
As the Duke of Wellington confronted Napoleon at Waterloo in 1815, Mr. Rothschild worked on behalf of the crown, quietly amassing gold and silver to pay the troops. Napoleon succumbed.