Published: Wed 12th July 2017
Read Time: 4 minutes
The Next European Financial Hub: Paris?
After the UK voted to leave the European Union, many questions arose. Amongst them, one stood out within the Financial Services industry. Should banks headquartered in London relocate their activities? If so, where? The former seems ineluctable, as it may seem optimistic to believe that the UK will keep the same advantages it had pre-Brexit.
Gunnar Herm, Head of Real Estate Research and Strategy, UBS Europe, stated: “Brexit is a threat for London. Financial services companies may not rush through the door to relocate; however, should uncertainties with the UK’s future relationships with the EU continue for too long, companies may re-assess their options and execute in the interest of their stakeholders.”
One Step Closer to Paris
Furthermore, many London-based banks have already addressed their will to relocate. For instance, HSBC indicated it would transfer approximately 1,000 Trading staff from London to its Champs-Élysées Paris base in two years’ time. The latter is a more complex decision and many factors must be taken into account. Many cities are actively trying to lure the banks in, and the French capital is one of them. Indeed, the day following the referendum’s results, Valerie Pecresse, Head of Paris’ regional government, wrote to 4,000 British executives to advertise the business virtues and the lifestyle that the City of Light offers. With this in mind, could Paris be the next major European Financial hub?
Paris definitely offers many advantages: competitive real estate prices, an attractive way of life, the large asset management sector, the many European banks already implanted in the capital (which demonstrates that it could welcome more), and numerous skilled professionals graduating from world-class business schools. Despite this, Paris does present a few major flaws playing against itself.
The Drawbacks of Paris
Firstly, any company making profit in France is subject to pay certain taxes. Employing qualified French bankers is generally more expensive for the company due to the higher social contributions in France. But the taxes affecting the banks the most are the corporates taxes. Indeed, in France, 33.3% of gross profit is taxed with an additional 5% as social contributions for a total of 38.3% of the gross profit. Whereas, currently in the UK, the corporate tax rate is at 20% of the gross profit and is planned to be reduced to 17% by 2020. Thus, if the banks relocate their activities, they will heavily suffer from the expensive French tax system.
Secondly, France has a highly popular anti-Finance sentiment. Dominique Senequier, President of a 60bn equity fund, recently claimed during a visit to Cass Business School, London: “French people are less financially minded. I’m not afraid to say that because I say it very regularly. We have many other things. We are very good cooks. We have the Mediterranean and we are very good entrepreneurs”. There is a real scepticism towards Finance and Banking. Bankers are often viewed as evil lobbyists by the middle class, and this mentality is slowing down the expansion of the Financial Services industry in France. However, many people’s mind-set in the capital city seems to be evolving, with more and more students studying Finance related subjects in prestigious universities such as Dauphine, HEC Paris or Polytechnique.
Furthermore, the language barrier is strong, as many French citizens do not speak English fluently. This is mainly because of the educational system not being focused enough on actually “speaking” the language, even though the situation is improving. This barrier could make collaboration between French executives, incoming, current, and relocated employees more difficult.
Lastly, the comfort and facilities offered in La Defense are hardly comparable to the offices in Canary Wharf. The French Financial hub is less luxurious and sometimes badly frequented. There are some changes that executives settled into a fancy lifestyle in London might not appreciate.
Macron Boosting Paris’ Prospects
To conclude, Paris still has quite a long way to go, economically, morally and politically speaking, to become Europe’s next Financial hub. However, with the recent elections, and Emmanuel Macron winning the Presidency, things might change. Indeed, Macron is a former Rothschild banker and he has said that he will “roll out the red carpet” for London bankers who might want or need to relocate, if Brexit occurred. He already has plans to reduce the corporate tax rate to 25% and is currently modifying labour laws. The new Presidency may be a real game changer, in attracting banks from London to Paris.