The City vs the country
Having lost more than £4 million, George Walsh decided to call it a day. A foreign-exchange trader at an international bank in London’s financial district, Walsh – who requested we change his name – had worked non-stop for 32 hours as the referendum took place and the results came in, trading on the premise that the UK would remain in the EU and losing out when the public went the other way.
Walsh’s bank, like many others, had chosen its positions based on polls indicating a Remain win, stockpiling sterling in hopes of a bump after the result was announced. At 5pm on Friday afternoon there wasn’t much left to do and he and his exhausted team went home dejected. “It was traumatic at the time, it’s still kind of traumatic,” he says. “The wrong thing happened.”
Not for the first time, the City of London – the historic ‘Square Mile’ that is synonymous with banking and finance in the capital – found itself at odds with the rest of the country. While banks were reluctant to explicitly state their position ahead of the referendum, a British Bankers Association survey found that of those who expressed a view one way or the other only three of its members thought leaving the EU would have a positive effect, with 42 believing it would be negative. On 3rd June, JP Morgan chief Jamie Dimon said a Leave vote would be a “terrible deal for the British economy”, which could result in job cuts at his company’s UK offices. On 22nd June, more than 1,280 business leaders signed a letter backing a Remain vote. Despite this united front from the business community, the UK still voted to leave the EU.
As the results became clear, global markets went into freefall. The value of the pound against the dollar plunged to a 31-year low and the share prices of British banks fell sharply, with those for Lloyds Banking Group, Barclays and Royal Bank of Scotland dropping more than 30 percent when markets opened on 24th June, before partially recovering by the afternoon.
Not everyone lost out, however. Hedge fund manager and vocal Brexiteer Crispin Odey was reported to have gained £220 million for himself and his investors by betting on Brexit. Odey, who has an estimated fortune of £900 million and a £150,000 Palladian chicken coop in his Forest of Dean home, declared “I think I may be the winner.”
It was the kind of statement that reinforces the scale of the divide between the City and the country. After the referendum it became apparent that the geographical split between Remain and Leave correlated closely with the economic recovery from the financial crisis of 2008 – a recovery that has largely been limited to wealthy pockets of London and the southeast of England. “[The referendum result] is a political reaction to the broader economic crisis, and the fact that it has clearly not gone away,” says Tony Norfield, author of The City: London and the Global Power of Finance who spent 20 years working as a banker in the City. “To put it in medical terms, we’ve passed the acute phase, and we’re in the chronic phase now. It’s no longer ‘You’re going to die tomorrow’, but the huge burden of debt and all the other troubles are still there.”
“There is a feeling reflected in the vote of ‘This system doesn’t work for me and I’m going to protest against it’”
A NatCen report on British social attitudes found that the amount of people who believe banks to be well-run fell from 91 percent in 1987 to 19 percent in 2012. This doesn’t surprise Norfield at all. “It’s quite understandable. You’ve got a lot of people who are earning a huge amount of money, vast multiples of what normal human beings earn, and when things go badly wrong they seem to get away with it,” he says. According to the European Banking Authority, there are more than 2,000 bankers whose annual pay packages amount to more than €1 million (£730,000) each in the City – more than in the rest of the EU combined. Even leaving aside the top earners, the numbers are stark: in 2015, the median salary for people who work in the City of London – was £50,575, while the national average was £22,487.
Walsh is aware that many people outside of London have a less than flattering perception of those working in the City. “They think everyone working in London’s financial sector has it pretty easy,” he says. “The general attitude is that everyone in the City has an expensive house and a big salary. What they don’t understand is that the financial sector provides for the rest of the country. There’s a reason why GDP is doing so well and that’s because the City makes a lot of that money.” The UK’s financial services make up about 10 percent of the country’s GDP, compared to around 4.7 percent in France and 4.2 percent in Germany.
Norfield, too, thinks that anger directed at the banks is misguided. He says people misunderstand what caused the crisis in the first place – capitalism, in his view, not banks – and fail to appreciate the role financial institutions play in filling the state coffers. But in the context of growing inequality, statements from economists including Bank of England governor Mark Carney that the UK’s economy would shrink as a result of a Brexit, were unlikely to move those who had gained little or nothing from the status quo. “People think, ‘They would say that, wouldn’t they? Why should I believe people who tell me a bunch of lies?’” says Norfield. “There is a general popular feeling reflected in the Brexit vote of ‘This damned system doesn’t work for me and I’m going to protest against it’. The problem was that the protest was nationalistic and anti-immigration, rather than being anti-capitalist in any sense.”
Three months after the vote, the City appears to have calmed down, at least for now. A report by Ernst & Young published on 22nd August said that within the financial services “the immediate impact of the referendum result has not been as stark as many initially feared.” Only a fifth of banks who were tracked for the report had voiced concerns over the future or talked of a negative influence from Brexit on their financial performance in recent earnings statements.
However, the City’s future as a European financial powerhouse remains in doubt. The prospect of UK-based banks losing their passporting right – which allows them to operate freely across European markets – could yet result in an exodus from the Square Mile. Much now depends on the deals negotiated between Westminster and Brussels. Two months after his doomed 32-hour shift, Walsh had made between a third and half of the £4 million back. He is convinced the government will not let its coveted financial sector slip away without a fight. “This is the business model of this country; it’s not likely to change,” he says. “They’re not going to kill the golden goose. The government isn’t going to say, ‘Oh, we’ll stop doing this,’ and all of a sudden we’ll become Germans and become good at manufacturing, because we’re not. They’re going to try to keep what we’re good at. They are going to cut taxes and deregulate. It’s going to backfire, massively, on the people who voted Leave. There’s no way of getting rid of the City.”
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