Which Sectors Will Feel the Biggest Impact from Brexit?

Which Sectors Will Feel the Biggest Impact from Brexit?

While the overall economic impact has been decidedly negative, the Brexit is expected to have a variety of effects, making its mark on various sectors to different degrees and hurting (or helping) some firms more than others. One of the biggest victims is the financial sector, for which London serves as a global capital. Reuters‘ Olivia Oran, Anjuli Davies and John O’Donnell look into how banks are responding to the vote:

Bank executives have been making contingency plans for months, but many were still surprised by the outcome of a British vote on Thursday evening to leave the European Union (EU). Even with those plans, huge uncertainties remain about when Britain will formally exit the EU, and what cities could replace London as New York’s transatlantic counterpart. … Among the questions being asked in C-suites across Wall Street: What’s the best European city to house a broker-dealer, if not London? Does Frankfurt have the capacity to house tens of thousands of bankers and their families? Will language be an issue in cities where English is not the primary tongue? Will American bankers abroad be able to find schools for their kids?

Frankfurt, Paris, Amsterdam and Dublin are all in contention for relocation. Even with all that uncertainty – and a timetable of at least two years for Britain to formally exit the EU – U.S. banks appeared to be moving quickly to respond to the Brexit decision. JPMorgan Chase & Co is considering changes to its legal entity structure in Europe, as well as moving some of its 16,000 U.K.-based employees, according to a staff memo signed by Chief Executive Officer Jamie Dimon and other senior executives.

Goldman Sachs Group Inc has been planning for the possibility of a Brexit vote for “many months,” Chief Executive Officer Lloyd Blankfein said in a memo. The bank has been building a new European headquarters in London, and is now considering what to do with all the space, a source familiar with the matter said.

For a fuller picture of how banks are responding, Portia Crowe at Business Insider has compiled a helpful roundup of the memos major finance CEOs sent to their employees in the wake of the Brexit referendum. Stephen Gandel at Fortune counts how many jobs Brexit might cost the City of London:

Bank analysts at Keefe, Bruyette & Woods have estimated that the big U.S. banks allow could move just over 7,200 workers outside of London. What’s more, Lloyds of London, the insurance firm, has said that a material number of the 34,000 employees in the insurance industry could be moved out of the U.K. PriceWaterhouseCoopers estimates that Brexit could cost between 70,000-100,000 financial services jobs by 2020.

In all, there are around 360,000 workers in the City of London, which is the EU’s financial center. Nearly 11% of those people, or roughly 40,000, come from other places in the EU. While no-one even in the Leave campaign has raised the threat of forced repatriation, whatever the U.K. and EU agree among themselves in how to govern their relations in future is unlikely to make them feel more secure about their positions.

Not only are global financial organizations reconsidering their positions in London; even British banks are talking about relocating staff. HSBC might move 1,000 workers to Paris, the Guardian reports:

As the bank announced it was keeping its headquarters in London after a 10-month review, Douglas Flint, the chairman, told the BBC that while the “best answer” was to remain in a reformed Europe, the bank had the ability to “move people between London and Paris”. … He said the decision was “based on what will hopefully be a generational view” as he also revealed for the first time how HSBC might respond to a vote to leave in the referendum that could be held in June. The jobs that could move are outside the high street operations and largely in investment banking. Stuart Gulliver, HSBC chief executive, later told Sky News: “We have 5,000 people in global banking and markets [HSBC’s investment bank] in London and I could imagine that around 20% of those would move to Paris.”

Another sector that could feel a heavy impact is the automotive industry. Asian auto manufacturers, which have a significant presence in the UK, are now wondering how to proceed, Norihiko Shirouzu reports for Reuters:

Toyota and Nissan had said in the run-up to the vote that continued membership of the European Union was preferable for their operations: a vote to leave would create new challenges for an industry that employs some 800,000 people in Britain. Even so, Sunderland in northern England, where Nissan has its operations, was among the constituencies that surprised pundits by the extent to which voters supported an exit. Shares in all Asian automakers tumbled.

“We don’t have any choice but to be more cautious with our investment decisions, including moves like whether to produce a new or significantly redesigned vehicle model in the UK,” said one official at a global automaker with manufacturing capacity in Britain, speaking on condition of anonymity.

Tata Motors’ Jaguar Land Rover (JLR) is Britain’s largest carmaker, followed by Nissan, which has been in Britain for three decades and makes 475,000 cars a year in the country, most of them for export inside the European Union and beyond. According to sources familiar with the company, JLR has estimated its annual profit could be cut by one billion pounds ($1.47 billion) by the end of the decade as a result of Brexit. It said on Friday it remained committed to Europe.

British Airways, the UK’s flag carrier, is taking a beating in the stock market in the aftermath of Brexit, thanks to uncertainty over how its European parent company IAG will be treated in UK law after Britain leaves the EU. Benjamin Zhang at Business Insider explains why IAG might be in trouble:

Even though IAG’s operating headquarters is in London, the company is actually registered in Spain. This arrangement has worked well for the company, which formed in 2011 after the merger of British Airways and Spain’s national airline, Iberia. But with Britain’s decision to detach itself from the EU, IAG could be left in a precarious state should the incoming nationalistic UK government impose foreign-ownership restrictions on British airlines.

Foreign-ownership restrictions for airlines are customary around the world. The US limits foreign ownership to 25%, while the EU’s cap is at 49.9%. Because British Airways is now 100% owned by an EU company, IAG may be put in a position in which it will have to divest its holdings. IAG was very fortunate that it decided to register in Spain instead of the UK. Had the company registered in Britain, it would be subject to non-EU ownership restrictions as soon as UK breaks away.

Sam Byford at the Verge gives an overview of how Brexit could affect British film and television:

[T]he creative industry in Britain was largely behind remaining in the European Union; almost 300 prominent artists, actors, writers, and musicians signed a letter backing the Remain campaign. “Britain is not just stronger in Europe, it is more imaginative and more creative, and our global creative success would be severely weakened by walking away,” the letter read. “Leaving Europe would be a leap into the unknown for millions of people across the UK who work in the creative industries, and for the millions more at home and abroad who benefit from the growth and vibrancy of Britain’s cultural sector.”

US productions might feel the effect, too. Much of HBO’s Game of Thrones is filmed in Northern Ireland, for instance, partly supported by the European Regional Development Fund. HBO, however, says it doesn’t anticipate any financial impact on GoT, since the network took no money from the ERDF for the last few seasons, according to Entertainment Weekly. “It might be up in the air for U.S. studios who want to film in the U.K.,” German Marshall Fund partner Peter Chase told Foreign Policy ahead of the referendum. “There are EU programs to help fund all of this. If the UK is no longer part of the EU, that has the potential to go away.”

Advertising and media are also wary, Digiday‘s Lucinda Southern discovers:

“The uncertainty is a huge problem,” said Nick Thomas, practice leader, digital media at consultancy firm Ovum. “Investors, advertisers and consumers don’t want to open their wallets, so it’s done huge damage already to the whole value chain.” Thomas pointed out this uncertainty could make it tougher for newer forms and formats in media and advertising, as people will be more risk averse. …

The longer-term concern is talent mobility. London has been a magnet for people of diverse skill sets from the E.U. and beyond, attracting programmers, data scientist, developers, all with talents needed in digital businesses, as well as creative talent and TV production. The U.K. needs to invest in local talent as well as attract it from overseas, said Chris Combemale, CEO of the Direct Marketing Association. Basically, any stricter border control policy needs to allow for talent mobility.

Even football (or soccer to those of us in the US) may not escape the long arm of Brexit. Indeed, as an industry that relies heavily on recruiting talent from continental Europe, the UK’s Premier League could lose out on moneymaking star players, the Associated Press’s Rob Harris warns:

The English Football Association sees the potential for more homegrown players to gain first-team opportunities in the Premier League — and therefore boost the national team. But the Premier League will want to protect its status as the world’s foremost and wealthiest domestic soccer competition. That’s due just only to its competitiveness but the multinational makeup of squads.

With some clubs also playing Europe in the Champions League and Europa League, they could argue that government needs to provide some form of easier access to players from the continent. “If (Brexit) increases the number of English players, that is to be welcomed,” FA chairman Greg Dyke said. “But you don’t want to lose the best European players coming here.” While the FA was neutral in the referendum campaign, the Premier League backed staying in the EU.