‘Reports of London’s demise are premature’

Among the issues troubling the UK capital are the listings drought that has seen key companies debut in New York; Brexit and its gradual pull of talent away from the City, and jurisdictions such as Singapore and Dubai investing heavily to attract commercial disputes.

Financial News spoke to senior lawyers from international law firms at a round-table discussion on 13 June about the outlook for London and what the City can do to hold on to its leading position.

London under pressure?

The dearth of new listings on the London Stock Exchange, coupled with UK companies such as Arm and building materials firm CRH choosing to list in New York this year, has led to soul-searching about whether the City is losing ground to rival financial centres.

Turkish soda ash company WE Soda pulled its $7.5bn London float on 14 June in a fresh blow to the City’s equity markets, citing “extreme investor caution” in London (see page 2).

Speaking before WE Soda cancelled its London listing, senior lawyers said there were areas of concern about the City’s health as a financial and legal centre, but they also pointed to its many structural advantages.

“I don’t know whether we should be worried. But it’s right that we shouldn’t be complacent,” said Farmida Bi, chair for Europe, Middle East and Asia at Norton Rose Fulbright.

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Bi also flagged the increasing competition London is facing from financial centres such as Dubai and Singapore, but said that overall she was optimistic for the City’s future.

“I remember all the discussions around the introduction of the euro and the worry that we had about London being left behind as a result of that. It’s that vigilance that has allowed London to maintain its position and it’s right that we are vigilant again,” she said.

“There is no doubt that we’re under a little bit of pressure as a financial centre,” said Weil Gotshal & Manges’ London M&A head, David Avery-Gee.

Avery-Gee welcomed the UK government’s moves to reform London’s listing rules and said he was confident about the City’s long-term prospects.

“I don’t think London’s going anywhere, English law is not going anywhere. This is still the main place where people do transactions and where companies want to come. So big picture: we’ll be fine. But there is definitely an issue at the moment that needs to be addressed,” he said.

Chris Field, co-head of Dechert’s private equity practice and its corporate group in London, agreed that London’s future was secure longer term, despite competition from rival centres.

“Reports of London’s demise are premature,” he added. “Down at the moment, but I think not by any means out,” he said.

Tihir Sarkar, M&A partner at Cleary Gottlieb and a member of the firm’s executive committee, said: “The demise of London probably has somewhere to go,” but added “there’s lots to worry about,” citing the lower valuation of UK-listed companies compared with their US counterparts.

London’s advantages

Despite worries about London’s prospects, it remains one of the world’s top financial and legal centres for a host of reasons including its well-developed financial infrastructure, the emergence of English as the primary language of international business and the attractiveness of English law and London’s courts, the lawyers said.

Sarkar said rival jurisdictions could not match London as a leading financial centre.

“The infrastructure is far too deep in London. Dubai and Singapore have spent years building it up but still have a long way to go,” he said.

Natasha Harrison, founder and managing partner of litigation firm Pallas Partners, said London’s disputes sector was booming.

English law is sophisticated

“When my clients, usually hedge funds and private equity houses, are investing in jurisdictions, they want the right to English law, and English courts,” she added.

“English law is probably one of the most sophisticated. The courts are extremely sophisticated, more sophisticated even than in New York. [Clients] want due process, they’re not going to start writing their investments for the French courts or the Italian courts,” she said.

“We’ve been successful in preserving our position but we mustn’t rest on our laurels either, and that means investing in technology and investing in the judiciary as well.”

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Dechert’s Field said London’s geographic position and the primacy of English as a language of business gives the City an inbuilt advantage.

“London has two big structural advantages. The first one is language… the second is timezone. It’s much harder to do business the other way, say, from LA around to Asia,” he said.

Brexit’s impact

Lawyers at the round table said Brexit had forced them to follow their banking and private equity clients in moving people to continental Europe who would otherwise have been in London.

“In the funds world, clearly London lost because Luxembourg is where we do our funds now. Frankly, it probably started prior to Brexit. With Brexit, it’s over,” said Debevoise & Plimpton private funds partner Patricia Volhard, who splits her time between Frankfurt, Paris and London,

“EQT, Carlyle — these are huge offices in Luxembourg that could have been in London,” she said.

Bi said Norton Rose Fulbright had strengthened its continental European operations after Brexit, but said London had benefited from the lack of a clear rival financial centre emerging in Europe.

“London was lucky that a single alternative post-Brexit didn’t appear in Europe. We all sat there thinking: ‘Is it going to be Frankfurt? Is it going to Luxembourg? Is it going to be Dublin?’ And actually the clients — outside of funds — scattered right across the board,” Bi said.

Dechert’s Field said law firms had strengthened their continental operations as a result of people and business moving away from the UK, but said the shift has not been a dramatic one.

“The short answer is [Brexit] had a negative effect,” he said. “One of the key things now is making sure we figure out a sensible trading relationship with the world’s largest trading bloc that happens to be on our doorstep.“

Volhard said Debevoise had also strengthened in Europe after Brexit, including launching in Luxembourg in 2020.

“By no means do I think the business is diminishing in the UK, I think it’s the opposite,” she said. “But we need a stronger continental European practice: we can no longer rely on London to serve the continent.“

How to stem London’s woes

Defining the UK’s relationship with Europe, shaking up its listing rules and embracing artificial intelligence and digitalisation were among the solutions the lawyers put forward for London’s woes.

Sarkar said the UK had failed to define itself post-Brexit but said there was a “huge opportunity still” to do so.

“The pull of capital markets in the States is just incontrovertible, how do you compete against that? Shouldn’t we be defining ourselves in a different way other than what’s been listed on the FTSE?” he said. “We can be on the forefront of AI regulation, we can make ourselves relevant in that space.“

Avery-Gee said branding the UK as an AI centre would be a good move and called for incentives for investors to back UK companies.

“The attitude is we’re not an attractive capital market now. Deregulation is part of fixing that and there needs to be more incentives for investors and pension plans,” he said.

Harrison called for the English courts to evolve to deal with new areas of disputes such as securities litigation.

“I want to see the courts being brave and evolving in a competitive model and dealing with the issues of the day,” she said.

“We do need a period of stability where the government, whoever it is, is focusing on growth,” Norton Rose Fulbright’s Bi said.

“The changes we’re talking about, whether that’s AI, fintech or digitalisation, we need to focus on what we can do to attract those businesses here. And what London can consciously do to become a stronger financial centre outside the European zone,” she added.

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To contact the author of this story with feedback or news, email James Booth