Photographer: Simon Dawson/Bloomberg

Morgan Stanley, Aviva Join Chorus Warning May on Brexit Risks

  • Morgan Stanley’s Rooney says financial stability may suffer
  • U.K.’s Kirby, speaking at panel, says British position strong

One of Morgan Stanley’s most senior executives said Brexit could make markets less stable and increase costs for banks, joining financiers repeating their warnings of risks to the U.K. a week after Prime Minister Theresa May signaled the industry wouldn’t get special treatment.

“Disrupting how efficiently capital moves around London, from where it sits to where it’s needed, is a matter for the economy both here and in Europe, and it’s a matter for the stability of capital markets,” Rob Rooney, chief executive officer of Morgan Stanley’s international business, said at the U.K. Financial Services Brexit Summit in London on Tuesday. “We would be operating in a much less efficient model.”

The financiers used the conference to again warn May that they will move operations and jobs from London if she can’t secure them continued easy access to the European Union’s single market. May’s stiffening of her government’s rhetoric on Brexit at the Conservative Party’s conference last week sent the pound plunging to a 31-year low, stoking concern that she’s prepared to sacrifice access to the single market to get control over immigration.

U.K. Treasury minister Simon Kirby said at the same event that Britain is in a “strong place” to maintain access for banks to the bloc.

Ringfencing Burden

Rooney said failure to secure a favorable deal for financial services could lead to Morgan Stanley relocating staff elsewhere in the EU. The Wall Street firm’s most senior executive in Europe spoke on a panel including Banco Santander SA’s U.K. chairman, Shriti Vadera, John Nelson, chairman of the Lloyd’s of London insurance market, and Adrian Montague, chairman of Aviva Plc, who said his insurer likes “the status quo, thank you very much.”

Rooney said having to split his bank into U.K. and EU divisions may require “two sets of capital, two sets of ring-fenced liquidity and two sets of organizations governing these entities,” making it more expensive to service clients spread across the region. Britain must “make sure whatever transition we have to manage, for all of us, we manage as carefully as possible.” 

‘Remarkable Gem’

“The U.K. has quite a remarkable gem here in financial services and the City of London,” Rooney said. “We think the vast majority of those benefits will be preserved. Certainly our view is that London will remain one of, if not the most, eminent financial centers in the world. We’ll have to work extremely hard to make sure we don’t damage the benefits.”

Citigroup Inc.’s top banker in the U.K., James Bardrick, said the key decision facing financial-services firms was when to trigger their contingency plans and start the process of moving abroad, while Lloyd’s of London’s Nelson indicated that his industry was looking for more clarity on May’s negotiating stance.

"If we don’t get some sort of satisfactory access to the EU then we as a market will have no choice but to set up in the EU," Nelson said. “There is a huge premium on getting a sense of direction. Otherwise the horse will have bolted before we shut the door.”

Bardrick stressed the need for a long transition after the end of the two-year Brexit negotiation period. "A bridge is essential," otherwise, “I wonder whether the industry is able to get there safely," he said.

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