LONDON (Reuters) – The weeks leading up to Easter are typically some of the busiest of the year for bankers, lawyers and advisors in the City of London as clients rush to close deals ahead of a bank holiday set.
FILE PHOTO: Workers exit Bank Tube station, featuring the Bank of England (L) and the Royal Exchange Building (R) in the City of London’s financial district, London, Britain January 25, 2018. REUTERS/Toby Melville/File Photo
But comparatively little has happened this year.
City workers had hoped the first-quarter stagnation would end if Britain left the European Union on March 29, or indeed April 12.
But with Brexit on hold until October 31 and exit terms yet to be agreed, fears are growing that this could be one of the leanest years for the city since the aftermath of the 2008 financial crisis.
The London Stock Exchange has had just one company listing above £75m ($97.61m) so far this year. Trading turnover on the London Stock Exchange fell by a third in February and March from a year earlier and was the lowest since August 2016.
The average daily volume of London’s blue-chip FTSE 100 stock index fell more than all major exchanges in Europe except the DAX 30 over the past two months, according to a Reuters analysis of Refinitiv data.
European investment banking fees — most of which are earned in London — fell 25 percent in the first quarter, according to Refinitiv. And in the first quarter, just 11 new UK-based hedge funds were launched, compared with 35 in the same quarter of 2018, data from Prequin shows.
“There will be a long break. Investors need to see something much more positive about politics to be convinced to move again,” Alastair Winter, economic adviser at Global Alliance Partners, told Reuters.
“I can’t see how Labor and Conservatives can agree on a deal. They play games to avoid finger pointing. And by the time they figure it out, the city will just spin in the wind.”
The latest London Employment Monitor from recruitment firm Morgan McKinley, which tracks hiring trends in the financial services sector from January to March, showed job vacancies and jobseekers down 9 percent and 15 percent year-on-year, respectively. The number of vacancies and job seekers in the first quarter was half that of 2017.
Hakan Enver, Morgan McKinley’s managing director, said the figures showed employer confidence in the city was falling.
“Despite all the uncertainty of the last few years, there was always the assumption that by March 29th we would have some answers. But here we are, still waiting,” said Enver.
Neil Robson, partner in regulation and compliance at law firm Katten Muchin Rosenman, said in the six weeks leading up to the end of March the “paid” work he did was what he would normally do in a week and a half.
“People aren’t setting up new funds, they’re not hiring, they’re not firing them, they’re not doing new business because they’re just waiting to see what happens with Brexit,” he told Reuters.
Unlike the 2008 financial crisis, there is no panic, just pause until there is more clarity on Brexit and other global issues such as the US-China trade dispute.
“We haven’t seen any panic selling. There is resilience and people have decided they just have to watch this game,” said a senior private banker.
Robson said he’s seen a small increase in activity since the Brexit extension was agreed, but it’s still not at full capacity.
(Graph: LSE sales – tmsnrt.rs/2IrwrGg)
The slowdown has forced companies to be more creative about how to make money.
Several major investment banks, including JPMorgan and Goldman Sachs, have increased private company fundraising to fill an income gap created by low capital markets activity. JPMorgan recently helped British start-up banking firm Starling raise £75m to fund its expansion.
Banks are also spending more time delisting companies.
“I probably spend more time talking about opportunities than I did privately a year ago. You will see more of that from now on. There will be more take privates if valuations continue to stay low,” said Indy Bhattacharyya, director of broker Peel Hunt.
The slowdown isn’t limited to London – US banks this week reported global slumps in their trading operations.
But with the Brexit uncertainty confusing the issue, UK-based financial houses in particular are having a hard time.
“The bigger players will survive this, with some cuts here and there. Where there will be carnage is among the small-cap brokers, the boutique operators,” Winter said.
Canada’s Canaccord Genuity Group last month blamed Brexit and regulatory pressure for unacceptable returns in its UK capital markets business and the launch of a restructuring program that is expected to result in significant job losses.
As part of that plan, the company has put 48 jobs in London, more than a quarter of its City workforce, at risk of redundancy, according to an internal document seen by Reuters. It also plans to scrap its mining and investment trust businesses, two sources familiar with the situation said.
Canaccord said in a statement that it is in a consultation process and could not confirm details on the employees affected.
“While this process is difficult, it aligns with our previously stated strategy to better focus our activities in areas where we can be most relevant to our clients, while limiting our exposure to areas that are more sensitive to a respond to unpredictable market conditions,” the company said.
Faced with the threat of potential cuts, bankers say they are holding back on booking extended holidays, instead focusing on meeting clients and pitching ideas. But until there is more Brexit clarity, few expect it will lead to much new business.
“You’re likely to see more bankers in the school run this year,” said Peel Hunt’s Bhattacharyya.
($1 = 0.7684 pounds)
Additional reporting from Helen Reid, Maiya Keidan and Virginia Furness. Edited by Jane Merriman and Rachel Armstrong