Amid growing concerns regarding UK’s exit from the European Union (‘EU’), several U.S. banks are contemplating to shift their London-based operations to Ireland. The news, first published by the Financial Times, referred to large Wall Street firms like Citigroup Inc. (C), Bank of America Corp. (BAC) and Morgan Stanley (MS) that are eying Ireland as a destination if it becomes necessary to leave U.K.
Though the plans are in the preliminary stage, the latest revelation reflects that U.S. banks are getting ready for the likely isolation of Britain, which joined the club in 1973, from the EU due to the impending new banking union in the continent. This will eventually lead to the UK’s exit from the EU.
U.K. Prime Minister David Cameron has pledged to hold a referendum on a renegotiated EU membership, provided his Conservative party wins the May 2015 election.
Why Ireland?
Several US and Asian banks have their base in the UK that accommodates over 250 foreign banks for European operations as the country provides them an automatic passport to conduct business throughout all the 28 countries in the EU.
Brexit – the term coined to refer to Britain’s exit from the Eurozone – will probably lead to the termination of the passporting rights to UK. Consequently, such rights will not be available for foreign banks.
However, Ireland has several positives that are luring U.S banks to shift their operations from UK in the event the latter leaves the Eurozone. These include low corporate tax rate, Eurozone membership, English language, and a English based legal system. Dublin – the capital and one of the largest cities in Ireland seems to be the hot spot.
Citigroup, BofA and JPMorgan Chase & Co. (JPM) have Irish banking licenses that would permit them a passport, giving access into other EU countries. Currently, Citigroup has an employee base of 2,500 people in Ireland while both BofA and JPMorgan have over 500 employees in the country. Morgan Stanley does not posses Irish banking license but has a hedge fund administration business in Dublin.
Other possible locations considered by the U.S.-based banks include Frankfurt and Paris.
Conclusion
Last month, through a Treasury submission, foreign banks in London were cautioned about the potential implications of UK’s exit. The Association of Foreign Banks, whose members include BofA, Société Générale and Sumitomo Mitsui Trust Bank, expressed their view against the exit, given Britain’s importance in influencing EU rules and business volume. However, if Britain departs from the EU, they will reconsider continuing operations in Britain and may shift to some other region.
While nothing can be inferred conclusively, considering the attraction of Ireland, U.S banks may benefit following the shift of their operations from the UK.
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