Author: Hemant Chauhan
Recently, the Chief Executive of Goldman Sachs, the world’s largest second investment bank, has warned that London will falter when Brexit is actioned. The bank has evidenced to be the epicentre of controversy in the wake of the financial crisis. Lloyd Blankfein, the CEO, has stated he may consider offshoring staff from the London European Headquarters, dependent on the outcome of Brexit negotiations. Indeed, that highlights an implicated warning onto Theresa May, the UK Prime Minister, if she of course is re-elected in the forthcoming General Election.
Brexit is a highly intensive topic in politics, law and the economy. It will affect almost everyone within the EU. What remains foreseen is the unknown, as to how negotiations will come to play. The fact that Goldman has a London presence as its European HQ exemplifies that Brexit will impact its commercial relations with the European trading markets.
Kamal Ahmad, BBC News correspondent, interviewed the CEO:
“We are talking about the long-term stability of huge economies with hundreds of millions of people and livelihoods at stake and huge gross domestic product,
So, if it takes a little while – I’d rather get it right than do things quickly.” (http://www.bbc.co.uk/news/business-39812120)
The CEO is clearly concerned and is most likely holding some sort of political talks with key politicians in the UK and the USA alike. London is the top financial centre for the same reason that English is still the language of international business. English law itself is prided upon by other foreign jurisdictions for commercial certainty and objectiveness. It also helps, that the UK is in Europe’s time zone, handily placed between Asia and the US and that the UK spotted the importance of the City’s invisible earnings to the country’s economy. London is a financial services cluster. It explains why more bonds and derivatives are traded in London than anywhere else – contributing to approximately $500 billion in daily turnover. There are more banks than anywhere else. More than half of Europe’s equity investment is managed in London. Three-quarters of European hedge fund assets are dun from London. The City dominates commodity markets.
Mr Blankfein said he wanted to see as few barriers as possible to financial services being traded between Britain and the rest of the EU. The Prime Minister has said that the UK will leave the single market but has argued she wants a comprehensive trade deal to replace the present access arrangements. Labour has said it would scrap Mrs May’s Brexit plan, outlined in a White Paper in February, and keep access to the single market ‘on the table’.
Goldman Sachs, perhaps arguably so, remains a banking institution of heavy controversy from the public’s perspective. Principally this was because they continued to profit throughout the crisis and appeared to have been smart enough to have managed its risks better than almost all of its Wall Street competitors. The bank did have to reclassify itself as a bank holding company for regulatory purposes so that it could access Federal Reserve money to recapitalise itself. The bank itself is very powerful on the political spectrum, with many of its former employees holding particularly sensitive official positions. Matt Taibbi, author of Rolling Stones, presented a thesis that Goldman Sachs had been culpably involved in many important crises in the preceding hundred years. The bank was blamed in large part for the Great Crash of 1929 in New York for its role in ‘leveraged’ investment transactions. Taibbi’s article then drew a straight line through the bank’s involved in several other market collapses, the CDO boom, and the boom in oil prices in which Goldman had played a significant part as one of the world’s largest commodities traders.
“But right now we are trying to avoid that and so our advice and our interests would be benefitted not by one outcome versus another – although clearly we would like to stay close to where we are today – but what we are really looking for at this moment, the finest point we can make, is a long enough implementation period so we can begin the process of adjustment after we know what we are adjusting to.”
Thus, Brexit negotiations will ultimately determine how Goldman Sachs will determine its next steps. The CEO has stated he has contingency plans in place for the inevitable. Germany looks the next key location within Europe for key business practice and relations. The UK will have to carefully negotiate the terms in which banking can still prosper within London, and how London can still dominate the financial markets. If that is lost, however, or negotiated whimsically, our economy will simply worsen.
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