Global financial firms plot Dublin opportunities in post-Brexit era

Housing, school shortages and cautious regulator may limit scale of new business

The IFSC in Dublin city centre: the extent to which financial services companies and funds will seek to move business from the UK will ultimately depend on the nature of its divorce agreement from the EU. Photograph: Bryan O’Brien

The IFSC in Dublin city centre: the extent to which financial services companies and funds will seek to move business from the UK will ultimately depend on the nature of its divorce agreement from the EU. Photograph: Bryan O’Brien

 

Overseas financial firms including private equity giant KKR, Silicon Valley Bank, insurer Beazley and Bank of New York Mellon have said in recent days that Ireland is primed to win business from London in the post-Brexit world.

BNY Mellon, which has about 1,800 employees in Ireland servicing asset managers, insurance companies and hedge funds, highlighted its Irish base on a call with analysts during the week, as clients seek to move funds from the UK.

“We think we’re in good shape operationally to help our clients deal with whatever impact Brexit offers,” BNY Mellon’s chairman and chief executive Gerald Hassell said, highlighting its operations in Ireland, Luxembourg and Belgium.

“The fund managers, when they have to think about the jurisdiction of their funds, if they want to move them to the UK to a [location where they can access the EU], we are very well positioned to help them get there.”

Ireland is home to €3 trillion of investment funds, money market funds and special purpose vehicles as of the end of 2015, according to Central Bank data. The extent to which financial services companies and funds will seek to move business from the UK will ultimately depend on the nature of its divorce agreement from the EU and whether Theresa May’s government retains its access to the single market.

Dearth of infrastructure

Economists at Deutsche Bank warned earlier in the week that a dearth of office space, housing, school places and other infrastructure in Ireland, amid under-investment during the financial crisis, may limit the extent to which Ireland may be able to poach investment and jobs from the City of London.

Other observers have noted a reluctance by the Central Bank, chastened by the crisis, to approve swathes of regulated financial services business. Still, Cyril Roux, deputy governor at the bank, told industry bodies in the past 10 days it remains committed to a “clear, open and transparent authorisation process while ensuring a rigorous assessment of the application against regulatory standards”.

Beazley, a Lloyds of London insurer, told Reuters on Friday it is working to get European insurance licences for its Irish reinsurance business to allow it to operate throughout the EU, even if Lloyd’s loses access to the bloc.

Insurers are making contingency plans after Britain’s vote last month to leave the EU left them facing the risk they could lose “passporting” rights that enable them to sell their products throughout Europe.

Dublin is the favoured alternative hub to London for insurers due to its geographical proximity, similar regulatory regime, and English-speaking workforce, industry specialists say. It is already considered an insurance centre, with giant insurer Zurich having its European headquarters here.

Ahead of the UK referendum last month, Lloyd’s, which groups more than 80 insurance syndicates in the City of London, warned that the specialist insurance market would be less appealing to investors outside Britain after a Brexit vote.

KKR’s co-chief executive Henry Kravis said at an event in Hong Kong earlier this week that Ireland and Luxembourg are likely to be the main beneficiaries about 20 per cent of London’s financial sector relocates elsewhere because of the need to passport products and services across Europe.

KKR, which has $126 billion (€114.4 billion) of assets under management, bought Irish credit investment firm Avoca Capital three years ago. Last year, the firm joined forces with the Ireland Strategic Investment Fund to launch a €500 million fund to provide finance to residential property developers.

Meanwhile, Gregory Becker, chief executive of Silicon Valley Bank, the Californian tech-to-life-sciences lender, told analysts during the week he sees “plenty of opportunity” in Europe despite uncertainty created by Brexit, having established a presence in Ireland earlier this year.

Look to capitalise

IDA Ireland, the State agency in charge of attracting foreign investment, made it clear within hours of the UK referendum outcome last month that it will look to capitalise on the British vote.

The National Treasury Management Agency said in an investor presentation earlier this month, two weeks after the UK referendum, that Ireland may be a beneficiary from “displaced” UK foreign direct investment, particularly in financial and business services as well as information technology and new media.

Previous NTMA presentations had put a figure of €6 billion on potential investment Ireland could win on the back of the UK quitting the EU.

“Dublin is likely to compete with Frankfurt, Paris and Amsterdam for financial services, if the UK (City of London), loses its EU passporting rights on exit,” the NTMA said.