In Denial

The Five Stages of Brexit Grief

London's financiers are nearing the end of the coping process.

It's starting to look like banks are running out of coping mechanisms for Brexit.

The U.K.'s vote to leave the EU was initially seen as the sum of all fears for global finance. Yet it has been a squib so damp in terms of real economic impact that it prompted the Bank of England's chief economist to compare his warnings to a gaffe-prone weatherman's. Donald Trump's election and a lift in bank shares have only served to drown out the scare stories.

With British financiers now dropping their demand to keep an easy-access passport into the EU, it looks like bankers are some way down the road to accepting Brexit.

It will become a new regulatory burden -- costing time and money -- rather than an industry crisis. Using the well-worn framework of the five stages of grief, here's how we got here.


In the wake of the vote, JPMorgan Chase & Co. CEO Jamie Dimon questioned whether Brexit really needed to happen at all.

"Maybe you can even reverse [it]," he told an Italian newspaper in July. Unsurprisingly, banks quickly overcame this stage.


Old competitive wounds were reopened after the vote. French President Francois Hollande warned the U.K. would lose its euro clearing business. France's finance lobby called for U.K. firms to lose their passporting rights.

That prompted some U.K. ministers to play down the threat Brexit posed to the City of London -- but it wasn't so useful in inspiring mass indignation about the vote to leave.


The grand bargain proffered by lobbyists has so far been about protecting U.K. jobs and lucrative tax receipts in exchange for some kind of transitional deal or trade arrangement to preserve access to the single market.

The numbers of jobs under threat have veered from a modest 1,000 HSBC Holdings Plc bankers going to Paris to a Biblical exodus of 100,000 people if clearing goes.

Getting Over Brexit

European bank shares have rebounded from the U.K. vote to leave Europe and outperformed the market

Source: Bloomberg

But their warnings have fallen on deaf ears, with financial markets rebounding since the vote and the U.K. economy remaining in fine fettle (just don't mention the pound). And there's been widespread scepticism that so many bankers would really want, or be able, to move to Paris and Frankfurt.


In a report on Thursday, lobby group TheCityUK dropped its demand to keep easy access to the single market through passporting. Instead, it talked up the value of equivalence, an untested and flawed legal status.

While better than nothing, equivalence is still likely to raise political hackles given it will be decided by EU regulators and will probably require firms to jump through more hoops than they expect.

It's a reasonable lobbying gambit, but it suggests bankers are losing hope for a flag-flying victory arrangement. Equivalence has always been a fall-back.


The contours of Brexit are still largely unknowable. But it's likely to require banks to keep doing what they're already under pressure from investors to do: Cut costs, improve profitability and find business models that work.

A Cost, Not A Crisis

Brexit will be another headache for investment-bank profitability rather than an existential shock

Source: Bloomberg Intelligence

Studies by Citigroup Inc. and Moody's suggest that the loss of passporting would be manageable -- though certainly negative -- for most big international banks. It would be a costly distraction for management and would likely lead to trapped capital, higher operating costs and erosion of already low returns on equity.

For London's bankers, grieving over the result, lobbying can only do much. The best defense against Brexit turmoil is profit.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Lionel Laurent in London at

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    Edward Evans at

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