With the threat of a Brexit growing ever closer, stark warnings of the potential impact on the City of London grow louder. Bank of England governor Mark Carney has warned of major banks leaving the city in their droves, fleeing towards the safety of EU countries. But how likely is that to happen? It appears to be a generally universal opinion that a Brexit would have a negative effect on the City, at least in the short term. London’s financial centre is the world’s largest, contributing 9.6 percent to the UK’s GDP in 2011. It is home to 250 foreign banks, most of which are based here because of the access London gives to the EU market. Without that, banks could be forced to relocate abroad. “A significant amount of financial trade currently booked in London would leave if the UK left the EU,” says Alex Wilmot-Sitwell, head of the European arm of Bank of America Merrill Lynch. “It wouldn’t happen overnight but, steadily, it would fragment throughout the EU.” Of course, it largely depends on the agreement the UK reaches with the EU as to whether the City would retain unfettered access to the single market. However, without it, Carney has warned of the consequences: “Fundamentally in its broadest terms, the question is what degree of mutual recognition would be accorded to the UK… and whether or not a mutual recognition framework could be negotiated that would as much as possible replicate the current passporting regime,” Carney said. HSBC warned in February of the possibility of moving a large part of their investment banking arm to Paris should a Brexit happen: “If the UK leaves the EU it could have a significant impact on our non-ring-fenced bank – our trading room, corporate banking and investment banking – although it would not have an impact on our holding company domicile,” he said. “In that situation a number of jobs would leave the UK.” However, some are sceptical as to whether the impact would really be so great. After all, London was a global financial centre long before Britain joined the EU in 1973, and has remained so despite not joining the single currency. It boasts an impressive skill set, the world’s most universal language, and a time zone that allows for same-day working with both Japan and the US – even without access to the EU, London is a beneficial city to base business. In reality, it is not easy to simply move your operations abroad – it would be timely and costly. According to lobby group TheCityUK the 250 foreign banks based in the UK employ almost 160,000 people; moving this number abroad, or recruiting again, would be no easy task. Arguably, the City is the greatest financial centre in Europe with one of the most welcoming tax and regulatory environments. Any post-Brexit negotiations are likely to saw in favour of the UK; as we import £68 billion more goods from Europe each year than we sell there, we are in a strong bargaining position. In the event that the public vote ‘yes’ to leaving the European Union on the 23rd June, in the short term the effects are likely to be negative. The Sterling may well drop against many other currencies, largely on the panic created by the uncertainty of the future. But after that, it could go either way – in reality, no one can be sure. With a lack of any precedent to follow, we can only hope for smooth post-vote negotiations.

Miranda Wadham on 28/04/2016

Everything is online these days – talking, shopping, even banking. But would you trust a bank with no high street branches or customer service phone line – in fact, no way to talk to a real person at all? Fidor Bank is a German online-only bank launched in 2009, which entered the UK market last year. Despite having over 300,000 customers in Germany, it employs under 50 employees. Advice is given and received through an online ‘community’ of Fidor customers, sharing advice and helping each other with their problems. In true modern fashion, its interest rates are influenced by Facebook likes – the more it receives, the higher the rate will rise, up to a maximum of 0.5 percent AER. Chief executive Matthias Kroner says: “Our account is more like a marketplace than a closed box current account, it is a social community with a banking licence, it is a peer-to-peer economy. It’s a marketplace, shielded by a banking licence.” In January it launched a contactless debit card for its current account, but ut only the first three ATM withdrawals are free. After that, there is a £1 per withdrawal charge, whether the card is used in the UK or overseas. There is also a 1.5% foreign exchange fee on all non-sterling transactions, including cash machine withdrawals. The most recent online challenger bank to enter the UK market is Atom, whose chairman is the co-founder of Britain’s newest high-street bank Metro. It was granted a license less than a year ago to become the UK’s first digital-only lender, and its investors include star fund manager Neil Woodford and venture capitalist Jon Moulton, as well as Goldman Sachs asset manager Jim O’Neill. Unlike Fidor, Atom bank doesn’t even have online banking; everything is done through the mobile app, including mortgage applications and unsecured personal lending. “Mobile banking has overtaken branches, telephones and even internet transactions,” Mr Thomson said. “We have no branches, no legacy costs, no legacy IT systems or legacy balance sheet.” In fact, Thomson believes that customers are happier with less contact with their bank. “Customers who have less contact – face-to-face or voice-to-voice – with their banks are, surprise, surprise, most content,” he added. So far, its too early to tell for these banks just how well UK consumers will adapt to banking solely online; however, its clear that as with everything else, the internet is the future – and traditional banks will need to adapt faster in order to compete against the rise of start-up challengers.

Miranda Wadham on 28/04/2016

It started with just one store, its iconic red and blue sign standing out against the grey buildings of post-crisis London. Since then, it has multiplied; its name was whispered amongst friends, before hitting the headlines of main finance magazines. A growing ‘revolution’ against the traditional – and disgraced – UK banks: Metro Bank. The US-born Metro hit the streets of London for the first time in 2010 – the first new bank in the UK in 150 years, apparently – with the slogan ‘love your bank at last‘ emblazoned above the entrance. At the time this was, of course, a fairly tall order; 2010 was just two years after the financial crash that saw customers lining the streets of local towns to withdraw their savings from Northern Rock, a period that the British banking industry has yet to recover from. But Metro Bank ignored this, establishing itself proudly at a prime location in Holborn, ready to tackle the public’s mistrust with the kind of enthusiastic customer service that Americans are renowned for. It is now six years on, and Metro bank aren’t doing half bad. March saw their IPO on the London Stock Exchange raising £1.1 billion in private capital – and after an initial price plunge, shares are now steadily climbing back up. For founder Vernon Hill and his wife Shirley, things are looking even better – last Sunday, they entered the Sunday Times Rich List for the first time with a wealth of £400 million. Hill, an all-American businessman who made his fortune investing in Burger King, has a motto: “great brands grow by building fans.” And over the past six years, the fan-base has grown; the bank now has 717,000 customer accounts, up by 62,000 in the past three months alone. But the real question is – would I be one of them? At first sight, the bank has a very American feel – imagine, if you will, a cross between a bowling alley and an upmarket McDonalds and you’re about on the right page. However, I’m easily pleased and took a liking to the idea of having water bowls and treats for pets – I didn’t come in with a dog, but it was a refreshing change from the formal atmosphere of my current bank. (They also pay the re-homing fees for customers adopting pets from Battersea Cats and Dogs Home – I’m not entirely sure why, but I thought it was a nice touch.) I was offered a drink by surprisingly friendly staff, and shown where to wait – so far, so good. I’m no stranger to opening bank accounts – at university I opened as many as possible to take advantage of the cheap overdrafts and free railcards banks use to woo students – but this was the easiest so far. I needed only my passport – no proof of address – and the debit card was printed on the spot, rather than arriving in the post days later. However, the biggest selling point for me is the lack of transaction fee in Europe – as standard, Metro bank take no commission on payments made abroad and convert the currency at competitive Mastercard exchange rates – a rarity for UK banks. I chose my PIN and was signed up for online banking within minutes; I walked out half an hour later with a fully functioning bank account. The group now have over 40 branches across London and the South West, all of which are open seven days a week. Financially, they are doing well for a relatively new company – revenue rose 11 percent in the first quarter of 2016 and, whilst still not making a net profit, underlying losses were reduced by 7 percent to £7.9 million. If growth continues at this pace, management expects to break even this year and finally turn a profit in 2017 – not bad for a bank that is only six years old. Of course, we’re only a couple of hours into our new relationship and there are still many aspects to be tested – how will they fare when I lose my card? Or if my card is blocked aboard? Only time will tell, and for that reason I won’t be making plans to swap my main current account over any time soon; but based on today, Metro has potential. As a bank trying to be give a refreshing, customer-based experience, it certainly hit the spot.

Miranda Wadham on 27/04/2016