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Brexit and the City: bankers kick in their heels

If DD can cast your minds back to the weeks and months after the UK voted to leave the EU, the predictions for the future of London were pretty dire. 

Brexit was going to dethrone the City as Europe’s key financial hub. Initial forecasts showed London, which has long been at the heart of global finance, second perhaps only to New York, would lose tens of thousands of jobs to places like Paris and Frankfurt. 

But much like the £350m per week the UK would save by leaving the EU, if you were to believe a message emblazoned on a red bus, the London exodus has been wildly overstated.

Chart of headcount in the city for 2015 and 2020 showing that the impact of Brexit on the City has been muted so far

In fact, our colleagues have found that some international banks and asset managers have increased their headcount in the UK capital over the past five years. The full results of the study are here

It isn’t for want of other countries in the bloc trying to reshape the likes of Paris and Frankfurt as Europe’s new financial centres. Tax breaks were offered and labour laws were changed to try and lure in global financial groups from London. There was even a trip to Versailles. (Not to be confused with the one taken by Carlos Ghosn.)

But it doesn’t seem to have worked as of yet. Though it’s important to keep in mind that the UK’s official departure from the EU — December 31 — is weeks away and UK prime minister Boris Johnson is no closer to reaching a deal. Not to mention the coronavirus pandemic, which has upended where and how we work, which could have a bigger impact on staffing than Brexit.

Among those who did choose to leave the island, they did so in smaller numbers than anticipated. Société Générale moved about 300 jobs out of London, its chief Frédéric Oudéa acknowledging “[t]here was a certain shift, but the magnitude has been relatively moderate”.

Foreign banks and asset managers have generally added jobs in the EU since Brexit

Deutsche Bank, which originally predicted 4,000 jobs were at risk of moving, has only shifted about 100 positions out of London to Frankfurt, with another 200 to 300 to follow.

Meanwhile, BNP Paribas and UBS have both increased their headcount in the UK.

Chart of headcount for foreign banks in London showing that most international banks have maintained jobs in London since the Brexit vote

Trust us, this isn’t some sort of indulgence on the new and improved global Britain. It’s no secret that money and jobs have left the UK since Brexit, and the swagger the City used to once have has diminished. 

While the apocalyptic predictions about London’s financial future were exaggerated, there will undoubtedly be some turbulence. Lex’s Jonathan Guthrie took a video tour of London’s prime financial spots to explain how Brexit will disrupt businesses from Mayfair to the City.

For further reading, dive deeper into the City’s rise to become a financial powerhouse with this read, and gain more perspective into London’s post-Brexit fate with the FT’s full Future of the City series.

Leveraged buyouts: the shoe’s on the other foot

Private equity dealmakers beware: lawyers in the US warn leveraged buyouts could become a lot more difficult after a court said creditors could go after a company’s former directors if a private equity buyer saddles the business with an unsustainable amount of debt.

It all started in 2014 when Jones Apparel Group announced its $2bn sale to buyout shop Sycamore Partners. Some of its shareholders sued the company’s board for selling out too cheaply, alleging they breached their fiduciary duty.

Jones would eventually be rechristened by Sycamore as Nine West — one of its top brands — before the fashion retailer went bankrupt in 2018, leading to an ugly fight between creditors and its private equity owner. 

Sycamore was accused by creditors of asset-stripping, alleging it sold two of its top brands, Stuart Weitzman and Kurt Geiger, to a Sycamore affiliate for too low a price, leaving the remaining Nine West brands unable to shoulder the LBO debt.

The litigation eventually went away (Sycamore settled for $120m within the Chapter 11 case), but the scrutiny on former Jones directors did not. And their legal problems have only worsened in 2020, as reported by DD’s Sujeet Indap.

© Bloomberg

Now, creditors are alleging that the ex-directors effectively sold the company for too high a price, the opposite of what Jones stockholders had alleged years ago. They argue directors knew or should have known that Sycamore’s LBO debt was excessive and could lead to trouble down the road, but allowed the sale to go through anyway.

The concept that previous directors could be held liable for problems arising later is unusual. 

But New York federal judge Jed Rakoff has allowed those creditors to pursue such claims, refusing to dismiss the charges in a recent ruling.

Lawyers are worried about what this means for both public company directors and private equity groups. One top lawyer told the FT: “If Bank of America or Goldman Sachs or whoever is willing to underwrite a deal and the company gives a solvency certification and the market buys the debt what more should the selling directors do?”

For more on the iconoclastic Judge Rakoff, read this Lunch with the FT from 2015. 

Job moves

  • Citigroup has hired Peter Kimpel as its new head of banking, capital markets and advisory for Germany and Austria. He joins the bank’s Frankfurt office from Barclays, where he was head of banking for Germany, Austria and Switzerland. Previously, he spent four years as chief financial officer of Rocket Internet and before that worked at Goldman Sachs. 

  • BP’s former finance chief Brian Gilvary is set to take a senior position at Ineos, ending speculation he could become Rio Tinto’s next chief executive. Read more here

  • The indebted US telecoms group Frontier Communications has poached Nick Jeffery, the head of Vodafone’s UK division, as its new chief. 

  • Simpson Thacher & Bartlett has recruited Antonio Bavasso as a partner in the antitrust and trade regulation practice. He joins the London office from Allen & Overy, where he was co-head of the global antitrust and telecoms, media and technology practices.

  • Arnold & Porter has elected six new partners and five new counsel.

  • McDermott Will & Emery has hired Guillaume Kellner as a partner on its M&A and private equity team in Paris. He was previously a partner and head of the corporate department at Paul Hastings.

Smart reads

Fresh out of luck Losses brewed from Luckin Coffee’s staggering accounting fraud were just the beginning of Thomas Gottstein’s troubles as he took charge of Credit Suisse. The bank’s latest CEO has his work cut out for him. (Bloomberg)

Protect the nest “If you’re going to panic, then panic early,” says Nick Moakes, head of investments for the Wellcome Trust trust’s £29bn endowment fund. It was this emphasis on preparation that allowed his team to reap profits of £248m as the pandemic toppled markets. (FT)

Too big to fail Google has stretched its algorithmic tentacles further into the depths of the web than any of its rivals. For antitrust regulators, curbing the search engine’s omnipotent powers starts with its sprawling index of hundreds of billions of web pages. (New York Times)

Put it all on red Wall Street billionaires including Blackstone’s Stephen Schwarzman and Citadel’s Ken Griffin have donated millions of dollars in efforts to preserve Georgia Republicans David Perdue and Kelly Loeffler’s Senate seats against Democratic challengers in the upcoming run-off elections. (The Guardian)

News round-up

Barclays fined £26m over treatment of borrowers in arrears (FT)

Credit Suisse to focus on boosting wealth management profits (FT)

Russian hacks weigh on private equity's software investments (Reuters) 

EU warns that it may break up Big Tech companies (FT)

Group Nine media explores blank-cheque company for digital-media acquisitions (Wall Street Journal) 

JD Sports acquires US retailer Shoe Palace for $681m (FT)

Life insurer LV sells itself to Bain Capital for £530m (FT)

Volkswagen board backs CEO’s electric-car focus (WSJ) 

GBL joins global cycling boom in €800m Canyon Bicycles deal (FT)

Solutions 30 shares tumble after Muddy Waters joins attack (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com

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