January 27, 2023

Political Economy: Downside of a British E.U. Exit

It is becoming increasingly likely that Britain will have a referendum on whether to stay in the European Union. It is not just that Prime Minister David Cameron has promised to hold such a vote by 2017, assuming he is re-elected. The drumbeats from the opposition Labour Party that it, too, would hold a plebiscite are becoming louder. Opinion polls shows that Britons would vote to quit.

Of the many industries that would be hurt by such a “Brexit,” the City of London is the most prominent. The damage would range from moderate to severe, depending on the extent of the amputation.

The City is not just the financial capital of Britain. It is also the financial capital of Europe, and it vies with New York to be the world’s financial capital. Britain accounts for 74 percent of foreign exchange trading in the European Union and 40 percent of global trading in euros; 85 percent of E.U. hedge fund assets; 42 percent of Europe’s private equity funds; and half of pension assets and international insurance premiums, according to a recent report by CityUK, which represents the British financial services industry.

What is more, 37 percent of the British financial services industry’s trade surplus is with the rest of the Union; more than 40 percent of foreign firms coming to Britain cite access to the Union’s single market as a core reason for doing so; and about 40 percent of the tax take from financial services is from international businesses operating in Britain.

It is fantasy to suggest that all this business would vanish if Britain quit the Union. But it is equally fantastic to suggest that the rules that constrain how the City operates would go in a puff of smoke in such a situation.

The extent of the damage would depend on the type of exit. The least harmful would be a decision to quit the Union but stay in its common market. That could be achieved by Britain’s becoming a member of the European Economic Area, like Norway.

The snag is that E.E.A. members do not get to vote on the rules of the single market. Britain would, therefore, be left in a position where the rest of the Union. would have a free hand in determining how the City was regulated. The Union might even deliberately damage Britain to shift business to Frankfurt or Paris from London. In such a situation, many firms based in Britain would relocate some activity across the Channel to be closer to where decisions were made — dragging jobs and tax revenue with them.

That is a worse position than the status quo. Although Britain cannot currently veto E.U. financial services legislation, in practice it has only once lost out: when Brussels decided this year to cap bankers’ bonuses.

But the damage would be far more severe if Britain quit the single market as well as the Union and relied merely on its membership in the World Trade Organization to give it access to foreign markets, as some euro-skeptics advocate.

The W.T.O. is largely about protecting trading in goods, not services. It would not guarantee firms based in Britain access to the common market in financial services by what is known as the “passport.” That entitles firms based anywhere in the European Union to provide services anywhere else in the Union either remotely or by setting up branches, so long as they are regulated by their home authority.

If Britain relied just on the W.T.O., firms wanting to do business in the Union would have to relocate there by setting up subsidiaries. There would be a loud sucking sound as both British and foreign firms transferred jobs, wealth and tax revenue across the Channel. British citizens would not necessarily even be able to follow those jobs abroad because, post-exit, they wouldn’t have the right to work in the Union.

Meanwhile, the City’s competitiveness would be undermined if Britain no longer allowed E.U. citizens to work in Britain. While it could let them come, that seems an unlikely policy choice given that one of the main reasons euro-skeptics give for quitting the Union is to stop immigration from it.

Britain is also unlikely to throw out its financial services regulation if it quits the Union. It needs rules to keep the system from blowing up. And it makes sense to coordinate those rules internationally to make sure things don’t fall through the cracks as they did when Lehman Brothers went bust in 2008. It is true that Britain would be free to uncap bankers’ bonuses. But would that really be a populist priority after an exit?

Some euro-skeptics say the City would be better able to act as the world’s financial capital if it cut free from Europe. The opposite is likely. The City enjoys economies of scale from being the financial capital of Europe. Without that position, it would be less competitive, and its ability to serve fast-growing markets in the rest of the world would be compromised.

There are, of course, halfway houses between Norway’s position and simply relying on the W.T.O. The damage to the British financial services industry would then be somewhere in between that suffered in those two situations. Far better to stay in the Union and push to enhance London’s role as Europe’s and the world’s financial center. The City should campaign for that vigorously.

Hugo Dixon is editor at large of Reuters News.

Article source: http://www.nytimes.com/2013/07/15/business/global/downside-of-a-british-eu-exit.html?partner=rss&emc=rss

DealBook: SkyBridge Capital Comes Out a Winner in Las Vegas

Anthony Scaramucci, managing partner of SkyBridge Capital, at the 2011 Salt Conference in Las Vegas.Ronda Churchill/Bloomberg NewsAnthony Scaramucci, managing partner of SkyBridge Capital, at the 2011 Salt Conference in Las Vegas.

LAS VEGAS — Three years ago, the SkyBridge Alternative Conference in Las Vegas was something of a backwater affair.

Just 400 people showed up at the first conference, which featured few speakers that anyone outside of the hedge fund industry would recognize.

Flash forward to 2011, and the Salt Conference, as it is also known, featured such speakers as former President George W. Bush, David Axelrod, an adviser to President Obama, and a roster of the highest-profile hedge fund managers in the business. The conference, at the sumptuous Bellagio resort, was overbooked, with about 1,750 people attending it. After expensive dinners at the city’s finest restaurants, attendees fanned out across the Las Vegas Strip to partake in late-night partying at the impossibly packed nightclubs in something akin to a hedge fund spring break.

What exactly accounts for the vast turnaround and quick rise of the conference? Well, playing no small role in its popularity is Anthony Scaramucci, the talkative and relentlessly self-promoting founder of SkyBridge Capital, which is based in New York. The rise of the conference in some ways coincides with the rise of Mr. Scaramucci as a media figure.

Around the time of its first conference, SkyBridge appeared to be on death’s doorstep. The fund of hedge funds business was bleeding money as the financial crisis intensified, so Mr. Scaramucci decided he would go on a marketing offensive.

“I started doing TV and it was a ‘dead or alive’ strategy,” he said. “I wanted people to know we were still alive.”

The key reversal of fortunes came last year with SkyBridge’s acquisition of some of Citigroup’s hedge fund assets. Prior to the purchase, Mr. Scaramucci’s fund of funds business had dwindled to $450 million. Afterward, the fund swelled to $5.9 billion and today oversees roughly $8 billion.

These days, Mr. Scaramucci, sometimes referred to as “the mooch,” makes regular rotations on the business news channels, his hair always perfectly coiffed, his suits somewhat boxy and baggy, his demeanor the essence of Italian alpha confidence. He has published a book, “Goodbye Gordon Gecko,” a memoir of sorts that offers the type of advice that if delivered without such earnestness might make one cringe. He also caught the attention of many last year when he infamously asked President Obama why he was using Wall Street as a “piñata.” His office is adorned with piñatas that people including Jon Stewart of “The Daily Show” sent him afterward.

The contents of the Salt Conference gift bag alone say something. It contained a saltshaker, emblazoned with the word “SALT,” in case anyone missed the reference. Attendees were also given a Swiss Army toiletries bag with “SALT” stitched into its cover. Organizers dropped into each goodie bag a video of the movie “Wall Street: Money Never Sleeps.” Mr. Scaramucci was a consultant on the 2010 film and had appeared in it briefly.

Standing outside of Haze nightclub for the “red carpet” event on the final evening of the conference on Thursday, Mr. Scaramucci glad-handed hedge fund managers, investors and others tangentially connected to the industry as they headed for the open bar. A photographer lingered nearby to capture every smile.

The venue itself was so packed that scantily clad waitresses struggled to deliver drinks to the crowd, who ignored the dance floor for the booze. Conference goers raved about their experience, which seemed as much about the panels as about the environs of Las Vegas.

Indeed, Las Vegas did seem a fitting venue for Mr. Scaramucci’s event, with its flair for promotion and bombast, as he roamed the green room with his panelists and snacked on finger foods prepared by a chef. How Mr. Scaramucci selected the chef is telling. After seeing the widely circulated piñata comment, the chef sent Mr. Scaramucci a video of himself promoting his services. Appreciating his enterprising effort, Mr. Scaramucci contracted the chef to provide food in the green room.

Article source: http://feeds.nytimes.com/click.phdo?i=bf32cd344219879ebf938fde138568dd