JPMorgan Chase is urging about 300 of its London investment bankers to sign contracts requiring them to move out of Great Britain if it leaves the European Union without a trade deal, the latest sign of what Parliament’s inability to deliver the pain-free Brexit sold to voters will cost the country’s economy.
The new agreements would commit the employees to transfer to offices in countries that remain part of what would become a 27-nation trading bloc, according to a person familiar with the New York-based lender’s plans.
Such contingency plans are vital to JPMorgan and other banks whose operations in London have allowed them to take advantage of so-called passporting privileges, under which all EU members accept business licenses issued by any member nation.
A no-deal Brexit, viewed as an increasing risk in corporate boardrooms and international capitals after Parliament twice rejected the agreement that Prime Minister Theresa May negotiated with Brussels, would eliminate such rights. In so doing, it would effectively limit the potential market for London-based employees to Britain’s boundaries.
“We are now at the moment of decision,” May told Parliament on March 25, even while acknowledging that her plan, which would allow Britain to be out of the European Union in less than two months, lacked the votes to pass Parliament on a third attempt.
“We must confront the reality of the hard choices before us,” she added. If the House of Commons doesn’t approve her agreement and isn’t prepared to leave the EU without a trade deal, Britain will have to seek another extension, participate in European elections in the meantime, and consider holding a second referendum on Brexit.
While May remains committed to leaving, she has reportedly offered to step down if Parliament unites behind her proposal. May’s strategy, however, has steadily cost her the support of her own government, with Business Minister Richard Harrington accusing her of “playing roulette with the lives and livelihoods of the vast majority of people in this country.”
“The clear message I have been receiving from the business community is that the failure to secure a deal and to rule out a hard Brexit is resulting in canceled investment decisions, business being placed abroad and a sense of ridicule for British businesses across the world,” he wrote in his resignation letter.
What global investors think of Britain’s prospects on its own, even after a temporary extension to its original March 29 departure date, is also evidenced in the decline of its currency.
The pound is worth 9.5 percent less today than its $1.47 valuation before the June 23, 2016, vote that rattled both the existing European order and global markets, causing its volatility to surge. Business investment fell through most of 2018, and the housing market has been subdued, the Bank of England said in a February report.
Economic expansion likely slowed to 0.3 percent in the last three months of 2018 and to 0.2 percent at the start of this year, the central bank also said. Business investment, meanwhile, fell 1.1 percent in the first nine months of 2018.
Brexit “has been a negative for a while; its uncertainty has not been removed,” said Jamie Dimon, the CEO of JPMorgan Chase and the chairman of the Business Roundtable, which represents the 200 largest U.S. companies.
Leaving the European Union without a trade agreement “would be a huge negative for the U.K.,” he said, though less damaging for Europe and far less painful for the U.S.
“It’s still not a good idea,” Dimon added. “It just adds to the straws on the camel’s back that worry people about potential bad outcomes of bad policy in the U.S.”
President Trump, who contradicted popular opinion in 2016 by suggesting that British voters would approve leaving the European alliance, maintains that doing so could let May’s government negotiate a lucrative stand-alone trade agreement with the U.S.
“I’d like to see that whole situation with Brexit work out,” he said in a mid-March meeting with Irish Prime Minister Leo Varadkar, whose country is remaining in the EU. “We’re talking to them about trade, and we can do a very big trade deal with the U.K.”
Such a contract might be struck quickly but would take much longer to go into effect. May’s exit plan, which allows for a so-called transition period through the end of 2020, during which London and Brussels would negotiate future trade arrangements with each other, would let Britain simultaneously strike trade deals with other nations — with the proviso that they not be implemented until the transition ends.
Another complication is that Trump lacks unified support from Congress. Sen. Chris Murphy, D-Conn., traveled to the U.K. in late March to remind the government that the U.S. “may not save them from a decision to leave the EU.”
Despite Trump’s talk, a deal with the U.K. “would be hard for a lot of Congress members to swallow if we haven’t signed a trade agreement with the EU first,” Murphy told reporters on a conference call. “My priority would be to sign an agreement with the European Union and then sign an agreement with countries that decided to leave.”
In addition to trade concerns, Murphy said, he wanted to urge the British government to make sure its exit from the EU doesn’t reignite a long and bloody dispute over the 310-mile boundary between Northern Ireland, which is a part of the U.K., and the rest of Ireland, which isn’t.
“It’s really important to have someone from the U.S. government, the U.S. Senate” convey the message that “while Britain’s decision to be in or out of the EU is theirs to make, there will be consequences for Britain’s relationship with the U.S. if they screw up the peace process in Northern Ireland as a consequence,” Murphy said.
The so-called soft Irish border that exists today is a result of the Good Friday Agreement of 1998, which ended a dispute between nationalists who wanted a unified Ireland and unionists in Northern Ireland who wanted to stick with the U.K.
Brexit shakes up that status quo by creating the need for a stronger delineation of the border in order to enforce separate trade agreements set up by the U.K. and the EU in the future.
“I regret that Brexit is happening,” Varadkar told Trump in their meeting. “But the most important thing for us in Ireland is that their decision to leave shouldn’t cause any problems in Northern Ireland, where people actually voted to stay, and that we shouldn’t have a hard border or anything to disrupt the peace process.”
