After the Brexit, that represent the United Kindom’s withdrawal from the European Union, some financial statement needed to made some adaptation on their strategy. It is the case for the HSBC and Prudential.
HSBC chief executive Stuart Gulliver said trading operations that generate about 20 per cent of revenue for the lender’s investment bank in London may move to Paris, quantifying some of the aftershocks for the UK after Brexit.
“Activities specifically covered by EU legislation will move, and looking at our own numbers, that’s about 20 per cent of revenue,” Gulliver said in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland, with John Micklethwait. The bank confirmed that he was referring to the lender’s global banking and markets operations in the UK capital.
Gulliver, who runs one of the world’s most globalised banks, praised Prime Minister Theresa May’s handling of Brexit so far and also said he doesn’t expect a trade war to erupt between the US and China under incoming US President Donald Trump. Such an outcome could damage HSBC, given it makes most of its earnings in Asia. On Tuesday in Davos, Chinese President Xi Pinjing urged business and political elites to reject protectionism in his first public rebuttal of Trump’s rhetoric on trade.
A trade war “would clearly be negative for us,” Gulliver said. “We are the biggest trade-finance bank in the world.”
Gulliver’s remarks touched on hubs of world trade ranging from the US-Mexican border to China’s Pearl River Delta. The Davos gathering has seen policy makers and chief executives address the growing populist backlash against globalization and elites that spurred both Trump’s election in November and Britain’s vote to leave the EU in June.
Gulliver said HSBC will “proceed quite slowly” after May confirmed Tuesday that Britain will leave the European Union’s single market. He repeated his pre-Brexit estimate that 1,000 jobs at the bank’s offices in London are involved with products covered by EU legislation, which probably need to move to France when the UK leaves the single market.
“Some of our fellow bankers have to make decisions quickly” if they don’t have continental subsidiaries like CCF, the French commercial bank HSBC bought in the previous decade, he said.
Gulliver’s estimate of a 20 per cent Brexit revenue exodus from London matches that of Credit Suisse chief executive Tidjane Thiam. In September, Thiam said as much as one-fifth of the volume in the bank’s London operations could be affected by the loss of EU passporting rights.
May set out her most explicit vision of Britain’s future relationship with the EU in a major speech on Tuesday, pledging a “phased process” for exiting the single market that would allow financial-services firms time to adjust. Gulliver said he expects the UK financial-services industry to quickly rebound.
“Irrespective of Brexit, London will remain a global financial center, and the revenue impact of Brexit on financial services will be made good in two to three years’ time,” Gulliver said. Although some derivative operations may need to move, other business areas such as bond and equity trading and underwriting will remain in the UK capital, he said
The new head of Prudential’s M&G fund management arm, Anne Richards, has said it is considering shifting more funds to Dublin and Luxembourg after the Brexit vote.
Richards, who joined in June from Aberdeen Asset Management, said a tenth of M&G’s £255.4bn assets under management were from EU clients. “It’s a very important client base for us.”
Investors spooked by the EU referendum have been withdrawing their money, causing a 10% drop in M&G’s first-half profits. Richards said the firm was considering expanding its Dublin base, where it began building a funds business shortly after the Brexit vote, to maintain access to the EU’s single market.
“What we are trying to do … is give ourselves options so we are in a position to react and adapt,” she said. “Dublin and Luxembourg would potentially be options for us if we decide we want to have additional funds domiciled in Europe.”
This will depend on how the UK’s Brexit negotiations with the EU pan out. Under current rules, investment managers need a base in the EU to sell their funds to continental European retail investors.
Mike Wells, Prudential’s chief executive, who took over from Tidiane Thiam last year , said there was no question of leaving the UK behind after the country’s vote to quit the EU. “We like the market, we are succeeding here,” he said, adding that “at group level the immediate impact will not be material”. Prudential generates 80% of its sales and 70% of its profits outside Europe.
M&G’s operating profits dropped 10% to £225m in the first six months of the year, as investors pulled out nearly £7bn in the run-up to the EU referendum. The fund outflows are now slowing, after the Brexit vote triggered a spike in withdrawals.
This was offset by strong performances elsewhere. Prudential’s profits rose 15% to £743m in Asia, 9% to £642m in the US and 8% to £473m in the UK. Overall, group profits increased 6% to £2.1bn, beating analysts’ forecasts of £1.8bn.
M&G’s optimal income fund, which has many European clients, has seen the biggest withdrawals, and its global dividend fund has also been hit. To offset the outflows, M&G had cut costs by 8% “around compensation, marketing and good housekeeping”, Richards said.
In early July, M&G barred redemptions to its £4.4bn property portfolio fund, one of several property funds that suspended trading to stop the rush of withdrawals after the Brexit vote.