Who stands to lose out from ‘Brexit’? Goldman Sachs, for one

Wall Street Journal | 11 April 2016

The U.S. bank has made a big bet on London’s global financial clout

A vast construction site in the heart of London is a testament to Goldman Sachs Group Inc.’s $500 million bet on the city’s global financial clout.

But the bank’s new European headquarters might be a little emptier than planned if the U.K. votes in June to leave the European Union, Goldman’s GS, +3.59%  executives say.

The warning underscores a twist in what is turning into an increasingly fractious fight over whether the U.K. should opt for “Brexit”: the business groups that have the most to lose are neither European nor British.

For years, big U.S., Swiss and Japanese investment banks have used the U.K. as a financial springboard into the EU. A key attraction: the right to seamlessly sell their services across 28 nations without having to get regulatory approval in each individual country. Today, the U.K. is a European hub for derivatives and foreign-exchange trading. Around half of the U.K.’s £6.9 trillion ($9.8 trillion) in banking assets are held by non-British institutions, according to Fitch Ratings.

Read: Why U.S. investors should fear a ‘Brexit’

To save on costs and build economies of scale, banks concentrated large chunks of their global operations in Britain. Come the vote on June 23, this structure could be blown apart. Big international banks “have the most to lose,” said Chris Bates, a partner at law firm Clifford Chance, who has advised several banks on their Brexit plans.

No one knows what exactly would happen if the U.K. voted to leave the EU. The process could take years. The U.K. might be able to negotiate access for its banks to the EU. Or it might not.

Read: How a ‘Brexit’ could cost the U.K. $1.4 billion and a million jobs

But faced with the prospect of spending billions of dollars to rejig their operations, banks have been lobbying intensively against Brexit.

An expanded version of this report appears on WSJ.com

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