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Goldman Sachs commits to UK despite Brexit

Investment bank Goldman Sachs has agreed to sell and leaseback its new headquarters in a boost for London as Britain leaves the EU.

Goldman Sachs is selling its Plumtree Court office to Korea’s National Pension Service in a deal valued at £1.16bn. It plans to lease the building for 25 years, although it has an option to leave or stay after 20 years.

Doubts about the future of the new headquarters had been lingering as the investment bank’s chief executive had called for a second referendum.

The US banking giant has 6,000 employees in London based across three sites and hopes to move in the middle of next year. The 10-storey, 826,000 sq ft site can accommodate up to 8,000 people.

Richard Gnodde, chief executive of Goldman Sachs International, said: “The development of Plumtree Court and our signing of a long-term lease demonstrates our continued commitment to London and our European operations more broadly.”

Chief executive Lloyd Blankfein, who will leave the Wall Street behemoth in October, had cast doubt on the investment banks status in the country.

The company has said it plans to move a few hundred staff members to Frankfurt and Paris, without giving an exact number.

Mr Blankfein tweeted he’ll be spending more time in Frankfurt last October.

And a few days later, he wrote: “In London. GS still investing in our new Euro headquarters here. Expecting/hoping to fill it up, but so much outside our control. #Brexit”.

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EU is ‘a difficult place for business’, says Pippa Malmgren

Pippa Malmgren, who is a leading US economic adviser, has ripped into business scaremongering around the Brexit uncertainty.

Dr Malmgren, who also serves as an adviser to the UK Department of International Trade, pointed out that foreign investment in the UK is still rising despite Project Fear.

She added that Britain is far better place to do business than Europe, where taxes and regulatory red-tape are an economic barrier to investment.

These remarks follows news that the pound has fallen to its lowest level against the dollar and the euro this year.

At the same time, Britain’s economy rebounded in the second quarter this year despite Brexit uncertainty according to Office for National Statistics figures.

Dr Malmgren, who previously served in the White House under George W Bush, discussed the British economy in light of the growing risk of a no deal Brexit.

The businesswoman told Bloomberg: “The key thing to remember is that many of the investors are saying I may not like the uncertainty of Brexit, but it is not easy to make money on the continent.

“It is not an either-or situation. Foreign direct investment in the UK is still rising.

“The huge irony is that the weaker the sterling is, the more competitive the UK is.”

She added: “Money is a lot like water and it will move where it faces the least resistance.

“Unless the UK raises its taxes and regulatory red tape above the EU, then capital will continue to flow into the UK.

“More so still if the sterling is weaker.

“This idea that the City of London has to be smaller if there is no deal after Brexit simply doesn’t add up.”

The growing possibility that talks between the UK and Brussels will break down in the coming months has sparked economic fears.

Despite this, long-term investment in Britain by foreign businesses stood at £1.564 trillion, which is £12 billion or 0.8 percent higher than in 2016.

The world’s fifth-biggest economy relied on the services industry for growth in the second quarter.

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Foreign businesses to UK: solve Brexit or risk £100bn in trade

Business leaders from the US, Canada, Japan and India have told the British government to solve the Brexit issue urgently or put more than £100bn worth of trade at risk.

Lobby groups representing business interests from the four countries took the unusual step of issuing a joint statement on Brexit before the European council summit this week. It came days after Airbus said its investment in the UK would be at risk from a hard Brexit, prompting the health secretary, Jeremy Hunt, to say the Franco-German aircraft maker’s intervention was “completely inappropriate”.

Groups representing corporate giants including Nissan, Bombardier and Facebook expressed their concerns on Monday that Britain was heading towards a disorderly departure from the EU, potentially affecting more than £100bn in trade and putting investment in the UK at risk.

“International businesses who are heavily invested in both the EU and the UK are calling for urgent progress on the key outstanding issues remaining in the talks,” they said in the statement. “Resolving as many of the remaining concerns as possible is becoming more urgent by the day – with the clock ticking towards the October deadline for a final withdrawal agreement.”

The statement was signed by the American Chamber of Commerce to the EU, representing companies including Boeing, Exxon Mobile, Facebook, Dell, Coca-Cola and FedEx. It was also signed by the Canada Europe Roundtable for Business, Europe India Chamber of Commerce and the Japan Business Council in Europe.

The statement said they recognised the complexity of finding a solution for the Irish border, but urged both the EU and the UK to continue to try to find agreement on the issue.

In the meantime, they urged policymakers to “dedicate time and thought at the upcoming summit” to address the remaining issues, including the role of the European court of justice, the future UK-EU regulatory regime and post-Brexit preparedness.

“Reaching agreement on these issues will provide businesses with more confidence that a withdrawal agreement can be agreed and ratified, thereby providing legal certainty for the proposed transition period and avoiding the worst-case ‘cliff-edge’ scenario in March 2019 ,” the statement said.

It reflects a growing frustration in business over the lack of a clear Brexit strategy two years after the referendum.

In the wake of the Airbus comments, BMW said it needed clarity on Brexit negotiations “in the next couple of months”. Car manufacturers are expected to issue a fresh and strong warning over Brexit at a Society of Motor Manufacturing and Traders (SMMT) meeting on Tuesday.

The car industry employs more than 800,000 people in the UK and the Japanese ambassador has warned Theresa May that his country’s firms will quit Britain if a botched Brexit makes it unprofitable to stay.

Koji Tsuruoka told the prime minister earlier this year that if “there is no profitability of continuing operation in [the] UK … no private company can continue operations”.

Both he and the outgoing boss of BMW will speak at the SMMT conference.

Japan’s business interests in the UK include Nissan, Mitsubishi, Panasonic and Honda, with trade with the UK worth £46bn. Nissan, Toyota and Honda began their UK operations in Britain in the 1980s and now build nearly half of all of the 1.7m cars produced in the UK last year.

The car industry is concerned that if the UK does not stay in the single market, it will be hit by costly delays in delivering components from the EU.

America’s import and export trade with the UK is worth around £43bn but it is also a heavy investor in business with a large presence in the UK in tech, pharmaceuticals and transport.

Canada’s business interests in the UK include the Bombardier aircraft wing factory in Belfast, which was recently saved from making thousands of redundancies after winning a legal challenge in a trade dispute with US rival Boeing and the Trump administration.

The UK ranks as Canada’s second most important trading partner after the US with bilateral trade worth CN$27.1bn (£15bn). India’s exports to the UK are valued at around $9bn (£6.79bn) with machinery and clothing among the highest value products.

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Effects Of Brexit On Business | Consult With Dechert

Dechert is ‘the go-to firm’ in this space offering ‘cutting-edge and innovative advice’ on Brexit issues – Ranked Tier 1 Risk Advisory: Brexit, The Legal 500 UK 2017.

Lawyers in Dechert’s International Trade and EU Law practice bring a unique perspective to the legal and commercial analysis surrounding Brexit, having significant background and knowledge of the EU and the UK’s engagement with it. Our team members’ experience includes working on legal and policy issues for the European Commission, negotiating on behalf of Member States in the Council, and serving in various roles within the UK Government, including HM Treasury and the Prime Minister’s Office.

We are working with a range of industry bodies and businesses to develop their positions, to translate their priorities into an advocacy strategy and to plan ahead for the different potential outcomes to be faced on 29 March 2019.

Exactly what effects could Brexit have?

Dechert’s sectoral experts work closely alongside our International Trade, EU Law and Government Regulation team to map out the impact the Brexit may have on any given sector and business and advise on the trade and regulatory consequences.

Our lawyers have also authored updates on:

– Asset Management
– Competition Law
– Data Protection
– Employment Law
– Financial Services
– Imports and Exports
– Intellectual Property
– International Arbitration and Litigation
– Legal Framework
– Trade Agreements

What should I be doing now?

The majority of businesses operating with or in the UK should have already begun:

Reviewing and identifying aspects of the business that rely on, or assume the applicability of, pan-EU arrangements such as EU rules of origin and customs procedures, passporting for financial services, EU-wide medicine licenses, etc.

Understanding the actual (or likely) position of the UK, the EU Governments and EU institutions on the contents of the exit agreement, as well as the ambitions for the future UK-EU trading relationship.

Establishing what the UK’s baseline obligations in the WTO and other international bodies means for your business.

Identifying EU laws which currently impact both your operations and that of your wider industry.

Identifying the nature and extent of interaction with pan-EU agencies.

Considering a government relations strategy (whether directly or through an industry group). Identify key proposals or considerations. Make these reasoned, evidence-based, granular and ambitious, while taking account of political realities. Respond to government consultations.

Considering the impact on your supply chains and customer base.

Looking at the nuts and bolts of your business including your data protection obligations; contractual terms; employment rights; intellectual property plans; and ongoing litigation.

How Dechert can help

We have already helped industry bodies, companies and governments to develop their positions; to define clear priorities, red lines and concrete bespoke proposals; to translate this into an advocacy strategy that best fits their needs; and to plan for the different potential outcomes to be faced on 30 March 2019.

Our team’s previous experience, not only in the UK government and European institutions, but in the products and advocacy we have undertaken since the Brexit vote, offers clear benefits for Dechert’s clients and has ensured that many are now in a strong position whatever shape the Brexit negotiations will take in the future. When necessary the team can also call upon both local and internationally-based sectoral experts across Dechert to identify potential steps during the forthcoming negotiations that may help to minimize any risks associated with Brexit while also maximizing opportunities for clients. Three particular areas we recommend:

Conduct rigorous gap-analysis: based on an understanding of the likely Brexit options, identifying in detail the issues that businesses will face, where further research is required and where the key risks and opportunities lie.

Define priorities and red lines: the objectives should be ambitious while taking account of political realities, based on rigorous analysis and hard data that will stand up to scrutiny.

Design and implement an effective engagement strategy: development policy papers and detailed draft treaty language for use with decision-makers in the UK and EU governments and institutions.

Dechert has a team ideally placed to help, with offices in London, Brussels, Dublin, Frankfurt, Munich, Luxembourg and Paris. In addition to deep UK and EU legal expertise, our team has practical and policy experience – including of trade negotiations – developed at the European Commission, the Council and a range of UK bodies including the Prime Minister’s Office, the Cabinet Office, the Bank of England, HM Treasury, the Foreign Office, and the Attorney-General’s Office.

In addition to the deep expertise offered by our lawyers, Dechert also collaborates closely with leading firms of accountants, providing you with an evaluation not only of the legal implications for you and your sector, but also the economic implications. This combined approach can often assist with understanding the relative importance of risks identified. We would be pleased to arrange such a collaborative approach for you, and to recommend accountancy firms who with whom we have successfully collaborated previously.

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UK could lose £10bn a year in City-related tax revenue after Brexit

A leading City figure whose former role involved governing the Square Mile has said Brexit could result in the loss of 75,000 jobs and up to £10bn in annual tax revenue.

Sir Mark Boleat, who was chairman of the City of London Corporation until last year, said a seepage of jobs from the capital was already underway and that the political rows over a deal or no-deal outcome was now “irrelevant” to City chief executives.

Banks including JP Morgan, Lloyds, Barclays, HSBC and Goldman Sachs have already established subsidiaries in other EU countries, or moved part of their business because EU law requires them to be legally compliant from the day the UK leaves.

“It is no longer contingency planning. If you are running a bank it is non-negotiable. The regulators won’t allow it,” he said.

In an interview with Advisory Excellence before a keynote speech on Wednesday at the Cass Business School in London, Boleat said the City would not die as the financial capital of Europe but would be damaged by Brexit.

“These moves are bad for London, but they are also bad for the EU because they will make financial markets less efficient,” he said. “Financial services will be fine, but I would say if the City has 80% of international business now, in future it will have maybe 60%.”

Boleat said Brexit has prompted expensive and unwelcome processes and the damage would be seen over the decade to come.

“This is a 10-year operation. In the short term it won’t be noticeable in terms of staff. Banks won’t be putting out press releases saying they are moving some of their operations because of Brexit because they don’t want the publicity. They are just getting on with it.

“Moving costs millions. Banks have had teams of 100 working on Brexit. It is an expensive process. You have to identify which city to go to, applying for a [banking] licence costs millions, then you have to find the IT staff, find accommodation.”

He also believes the government is in such disarray that the Brexit deal will be pushed back to December, leaving business planning elsewhere perilously close to exiting the EU.

In his address, Boleat will say he does not think financial services will get a special passporting deal to allow them to continue pan-European services from London and that banks are already past that moment of truth, whatever politicians think.

“Those who suggested that some business would move were accused of scaremongering,” he will say before listing 15 major banks and financial services who have already set up on the continent or Dublin.

He will quote a report by the Oliver Wyman consultancy that says if the UK strikes a deal giving full market access, the impact on the City would be modest, the equivalent of 3,000-4,000 jobs and a loss of £500m in tax a year to the Exchequer.

“At the other end of the spectrum if the UK had no special status with the EU, now the most likely option, the industry would lost £18bn a year in revenue which would put 31,000 to 35,000 jobs at risk along with £3.5bn to £5bn in tax revenue.”

Add the knock-on effect for related industries and the loss of entire business units, there is an estimated further losses of £14bn to £18bn in revenue and 34,000 to 40,000 jobs and £5bn in tax.

Asked whether the government was aware of the daily bleed of financial services to the rest of the EU, Boleat said: “Not enough, that’s the worry. It needs business to talk to MPs, not to give their view on Brexit, but to explain to them ‘this is what I am having to do because of Brexit’. This is not scaremongering, this is reality.”

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Exclusive Insight: Making the most of Brexit transition time

A major trading company seeking a “Brexit-safe” solution; an automotive supplier concerned about financial complexity; a big FMCG player with questions about its logistics and supply chain.

These are among the corporate clients in close discussion with HSBC as they seek out post-Brexit opportunities and strive to mitigate any impacts of the UK’s withdrawal from the EU.

Chairing the webcast conversation, Andrew Betts, Regional Head of Global Trade & Receivables Finance, Europe, said clients were currently preoccupied with two main themes: digital disruption and regulatory changes, Brexit being one of the latter.

The forthcoming Brexit changes have triggered open and wide-ranging discussions between businesses and banks, according to Ian Tandy, Head of HSBC Global Trade & Receivables Finance, UK.

While much uncertainty remains, the potential transition period is widely seen as good news by businesses, he noted. They welcome the prospect of limited immediate impact for a period after March 2019.

However, Tandy urged corporates to make good use of that period: “It gives a little extra time for companies to prepare. The winners from Brexit will be those who plan most effectively.”

Braced for tariff changes

The panel emphasised that the importance of planning applies equally to EU-based as to UK-based corporates. Beatrice Collot, Head of HSBC Global Trade and Receivables Finance in France, said some France-based businesses were wrongly considering Brexit’s impact as falling purely on the UK.

This point was underlined by a recent report cited by Tandy, that calculates the costs of red tape if the UK is forced to fall back on World Trade Organisation rules after Brexit. This report predicts that this scenario would cost the UK economy £27bn, while its EU trading partners would lose £31bn.

Tandy pointed to the huge variations in tariffs that different sectors would be subject to: “A UK grocer importing vegetables from France would see the costs rise by 7.3%; UK fishing businesses exporting to Germany would see extra costs of 10.8%, affecting both partners,” he added.

Collot saw sectors responding in different ways. “In luxury goods, where margins are high, businesses are more able to increase prices to offset the cost of the customs tariff,” she said. “In the automotive industry and other sectors where margins are thinner, it’s more complex to absorb the additional cost.”

Facing up to complexity

Besides potential extra costs of border controls and warehousing, businesses are considering whether they need to source suppliers in new countries, or to seek business in new markets. Talent flow is a concern for some UK-based businesses, while licensing arrangements are an issue in sectors such as pharmaceuticals.

As part of their preparation, clients need to examine their entire supply chain with “intellectual curiosity”, Tandy said. He pointed to one major FMCG (Fast-moving consumer goods) business which had outsourced some elements of manufacturing. It is now working to track and understand every player involved, to ensure future compliance.

Alex Mutter, Head of HSBC Global Trade and Receivables Finance in Germany, said one automotive supplier with a huge European operation asked HSBC to help it reduce complexity, in readiness for any impact on areas such as foreign exchange and financing.

Another client, a major trader operating from the UK and Germany, was working to secure a “Brexit-safe” solution, Mutter said: “We have been able to help them achieve their objectives on balance sheet optimisation and risk mitigation as well as funding sources.”

Finance: the future is flexible

Clients will require flexible finance options in the post-Brexit era, the panel noted. Solutions will need to alleviate the impact of border controls on cost and working capital cycles, and to mitigate payment risk where businesses decide to seek out new markets beyond Europe, for example.

The panel’s trio of trade finance experts from across Europe underlined HSBC’s capabilities here, said Andrew Betts.

“With an established European network on both sides of the channel, and working with over 6,500 multinationals across Europe, we’re confident that we’re in a strong position to support customers regardless of the Brexit outcome,” he said.

Trade and technology

Brexit is far from the only issue on corporates’ agendas, Betts acknowledged, with regulatory changes and digital disruption also prominent. The webcast took place shortly after HSBC completed its first-ever distributed ledger trade transaction.

Collot, who leads a Paris-based innovation hub in trade finance, sees potential for big efficiency gains: “At present, financial and physical supply chains don’t talk to each other much. Convergence is an opportunity to gain full transparency and suppress the current inefficiencies of trade finance.

“It’s difficult to know where we will be in 10 or 15 years – but there’s a huge opportunity to change a paper-based business that has not evolved much in the past 30 years.”