After Britain’s exit from the European Union (Brexit), Dublin, the Irish capital, planned on pulling financial jobs from London, the largest financial centre in EU. However, Ireland recently sent out signals to various large investment banking firms that it is hesitant to take over large trading operations from London.
Irelands’ reluctance is related to the country’s painful legacy of a banking crash in 2008, and a subsequent international bailout.
Though the country is one of the world's largest centers to settle transactions and host a growing financial technology industry, its population is less than five million, and its yearly economic output is only 10% of Britain’s. This is the reason Ireland became vulnerable to the disaster that struck in 2008.
Until now, most of the large U.S, British and Swiss banks have conducted majority of their European markets operations in London. The U.S. banks include Citigroup Inc. C, The Goldman Sachs Group, Inc. GS, Bank of America Corporation BAC, Morgan Stanley MS and many others. These banks buy and sell foreign exchange, debt, equities and other financial instruments for their clients. These operations require large balance sheets and special talent.
Post Brexit, as these banks are expected to lose their “passporting rights,” they are working out where to trade, how to clear European securities and conduct other activities controlled by the EU regulation.
Adding to their worries, the central bank of Ireland indicated that if they want to conduct risky transactions in Ireland, which involve huge sums of money, they will have to encounter big hurdles to win regulatory approval for the same.
One source at a large global investment bank said, "Ireland is being very realistic about what it can and what it wants to do." The source added, "If you've come from all the troubles Ireland has, you want to be very careful about taking on risks."
"The central bank is open to engagement with any firm wishing to obtain an authorization," a spokeswoman for the Irish central bank said.
Another banking source said, "Yes, Ireland want insurers, asset managers, back office functions … but they don't want big balance sheet risk. They just don't want to take on that kind of risk and feel that they don't have the regulatory bandwidth to do that."
Yet another source at a global investment bank said, "Our sense is that the appetite in Ireland is not that high for balance sheet banks."
Thus, to conclude, it seems very unlikely that Dublin will become a major destination for the banks' riskiest business operations.
Of the banks mentioned above, Morgan Stanley, Bank of America and Goldman Sachs carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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