London’s reputation has taken a hammering of late. Buffeted by Brexit, a macroeconomic slump was the last thing the City’s capital markets needed after the pandemic.
But it came all the same, and prized listings went elsewhere. Politicians have rushed to the rescue with their version of Big Bang 2.0, as have some of the City’s brightest minds with new blueprints for growth.
But for UK Finance chief executive David Postings, it’s all become a bit of a storm in a teacup.
“I think we do have a habit of playing our own game down a bit,” he tells Financial News. “There was definitely a lack of activity in 2023, but it wasn’t restricted to London; it was continental Europe as well. That’s to do more with the economic outlook, interest rates, inflation, that kind of thing, people just sitting on their hands to see what happens.”
As head of the sector’s trade body, you might expect Postings to say that. But he is keen to back his boosterism up with evidence too, to crush the “myths” that surround the apparent loss of London’s financial crown.
Of the IPOs that did happen for UK companies last year, 91% took place in the UK, 8% in the US and 1% in Europe, he notes.
“Where there is activity it tends to stay here,” Postings says. “The market hasn’t been great, but that’s not necessarily down to nobody being in interested in the UK, I think it’s just low volume anyway.
“We also looked at those IPOs that took place in the US. Whilst they had a good initial price, they all then saw a lack of liquidity and a drop off such that, in the end, they probably would have been better off being here.”
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According to an 18 January TheCityUK report, the UK is still the world’s largest financial services net exporter, with a trade surplus of £92bn in 2022.
Amsterdam briefly took London’s equity trading crown in the wake of Brexit, but Postings says London has outdone the Netherlands for tech startups by six to one.
Despite the fact that no actual trading takes place there, the London Stock Exchange’s standing is such that protest group Palestine Action planned to lock on to building in January, only to be thwarted by swift action from the Metropolitan Police.
Yet the verbal protest over its waning influence has continued in 2024, not least from foreign exchanges that still see a chance to muscle in.
Rarely has the City been under such intense pressure to hold firm, and Postings is well aware of the challenges in store.
“We need to view ourselves post-Brexit as a challenger rather than an incumbent,” he says. “I think that’s a helpful way to look at it, because we have a very large financial services sector, which has got a big depth of talent, it’s got a great legal system and a pretty open economy, but we can’t take that for
granted because we’d have a pretty small home market.”
Plugging the bucket
In 2024, the overall tax burden on UK financial firms will be roughly the same as the Netherlands and Germany, Postings says. But it will be higher than Dublin and New York, and by 2025, it is set to have overtaken the others too.
“If I have a worry it’s not that the system itself is a problem, it’s the cost of doing business here in the UK that’s significant,” he says. “When you look at the economics of banking in the UK its challenging. You can make a better return on capital in other jurisdictions. That will have more of an impact on the growth or otherwise of the sector than anything else.”
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Postings should know a thing or two about banking. He previously led commercial banking for Lloyds Bank, and spent more than two decades at Barclays across corporate banking and IT roles.
But he – nor apparently many of the banks that pay to join his group – can get too excited about the recent removal of the cap on their bonuses.
“I think people had got used to [the bonus cap],” he says. “Obviously the argument goes that with more flexibility over your fixed costs, you can scale up and down. In a bad year for IPOs you don’t have to pay as much. But obviously there’s a lot of HR, people things to go through. You can’t just implement that.”
“If somebody said to you we are going to reduce your salary by 90%, don’t worry in a good year you’ll earn more, I’m not sure how you’d feel, I’m not sure how I’d feel,” he adds. “Not many of our members pushed for it. It wasn’t something that we advocated for. But what it might do is level the playing field with America a bit more.”
The risk factor
Lobbyists like Postings must tread a careful line between exuberant politicians promising sunlit financial uplands and regulators urging everyone to keep their heads.
There are certainly reasons for cheer. With regulators and policymakers finally sitting round a table through a new joint EU-UK financial regulatory forum late last year, hopes have grown over solving the many impasses to doing business on the bloc post-Brexit.
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With the reputational cloud of sexual harassment scandals looming over the City, Postings says firms are finally taking things seriously, and UK Finance had more engagement than on any other consultation when the Financial Conduct Authority mooted a new approach to diversity, equity and inclusion.
A new private company platform, known as the intermittent trading venue, is set to go live by the end of the year. Fledgling companies will be able to take to public markets at set auctions 12 times a year, potentially smoothing their path to mass investment.
FN asked the Treasury for any cost-benefit analyses it had conducted on the venue, but it said it did not hold the information. However, Chancellor Jeremy Hunt discussed the idea at a meeting last July and agreed to announce the 2024 plan, according to minutes seen by FN, a show of support for capital markets reform at the highest levels.
But if there’s one thing Postings is clear on, it’s that for UK financial services to reap some rewards, it has to take some risks too.
“We’ve got into this loop as a society where we want nothing to ever go wrong. And if it did, we would want absolutely draconian consequences for everybody involved. Because it has to be black and white, doesn’t it? Actually very few things are.”
That caution is why pension fund investment in UK stocks has collapsed from 32% in the early 1990s to just 1.6% now, he says.
“If you come back to what we are actually trying to achieve in the UK, which is growth, what we have to do is encourage people to take risk, not every process we put in place there’s this sword of Damocles hanging over it. The amount of time people on boards spend on compliance issues versus strategy has totally changed in the last 20 years. I’m not saying compliance isn’t necessary but there’s a danger that we, in a global sense, we take too little risk.”
– Jeremy Chan contributed to this article
To contact the author of this story with feedback or news, email Justin Cash
