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The topic of Brexit was never going to be far from the minds of delegates at the annual meetings of the International Monetary Fund and the Institute of International Finance, both being held this week in Washington, DC. And on Friday afternoon, delegates got a chance to hear the views of three vocal US bank chief executives — Jamie Dimon of JPMorgan, Mike Corbat of Citi and James Gorman of Morgan Stanley.
They didn’t downplay the significance of the result of the June 23 vote, when 51.9% of UK voters opted to leave the European Union. But they were staunch in their belief that it did not, and should not, affect the attraction of Europe as a destination for US banks.
In Corbat’s assessment, something new was now happening, and being reflected in voting processes of various kinds around the world. He cited the Brexit vote on the UK’s membership of the European Union, the surprising rejection by the Colombian people of a peace agreement between the government and rebels, and the progress of the US election campaign.
“What we are seeing is rather than people voting for things, people are voting against things,” Corbat said. He argued that the trend made the results — and their consequences — much more difficult to predict. The negativism stirred up by populism would weigh on an economy, he said. “When you surprise a population around these votes, it undermines confidence and the willingness to spend.”
Dimon, unsurprisingly, was mostly breezy optimism. Was Brexit his biggest worry? No. “It will reduce the GDP of the UK; that’s not a disaster. It will create years of uncertainty; that’s not a disaster,” he said. And he added that his industry will find what it needs to do within the new rules.
For him Brexit was about something much bigger. “Brexit was always about the survival of the eurozone,” he said. Here he was pessimistic: the vote had made the chance of the eurozone not surviving the next 10 years some five times higher than before.
Gorman agreed that what was at stake was the survival of a system that had been in place for 70 years and had been a success, notwithstanding challenges such as coping with immigration. But somewhere along the line, the positive message had been lost in a narrow discussion of those challenges that tapped a vein in countries like Spain, Italy and other parts of the EU.
As far as his firm was impacted, he said that “we care about the 25 year old, the 27 year old, in our office in London, who hasn’t been in the UK for five years. What happens to them? Do they get residency?”
And it was not just the effect on individuals. Occupying his mind is the question of how banks deal with moving parts of their business into different markets, and how this imposes other needs such as moving control, compliance and audit functions. Do other cities have the necessary infrastructure in accounting, legal and banking capabilities that a firm needs to make that kind of move?
Gorman is certain on one thing: “I think the big winner will be New York and the US”, not by design but as a result of the various potential outcomes. That said, he said his hope was that discussions would progress in such a way as to continue to encourage London, which benefited from good regulation, good rule of law and an entire ecosystem that had grown up around the financial sector.
As to whether Brexit changed a bank’s view on whether it would still want to be playing in Europe, all three CEOs were adamant. “Europe is an $18 trillion economy. It’s not a discussion of ‘do you want to be there’,” said Gorman. And parts of Europe were doing well, he noted, citing Germany and the Northeast, as well as economic miracles in Eastern Europe. “Europe remains a critical part of running a global financial institution.”
Corbat, running a firm that has its pipes connected to 20 of the 27 EU countries that will remain after the UK’s exit, said that it was “not a question of being there, just how you would be there”.
Dimon certainly has a head for risk, but he doesn’t see much point in endless discussions about it: he said he likes to cut risk committee meetings off after an hour because if they go on too long they tend to result in not taking any risk. He mused that someone pitching to a risk committee about the merits of investing in the US after a trip there in 1865 might have come across plenty of objections.
That didn’t mean he didn’t see problems: a country leaving the eurozone was a real issue, as was dealing with the complexity that it would create. But at the end of the day, “the world is going to be ok”.