The pound must fall a lot more before bankers will want to leave London

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The British pound is on its way down, again. Following Theresa May's decision to cancel tomorrow's vote on her Brexit deal, City of London traders will get to bed early tomorrow night, but they could be kept up worrying that their compensation will be worth less when they return home for Christmas and convert it into euros.

The pound is down around 20% against the euro since its peak of €1.41 in July 2015. A London bonus of £500k that was worth €705k in July 2015 is now worth €550k. If you're a French, German, Spanish or Italian banker in the City, this matters - all the more so because a lot of continental European bankers in London aspire to return home when they retire. Money earned in London will buy less of a finca than it used to.

Our own research suggests that around 45% of people in front office corporate finance and sales and trading jobs in London are non-Britons: just 55% of people in our CV database who occupy these roles in the City of London speak English as a first language. That's a sizable chunk of people exposed to the gyrations of the pound. - One French trader at Bank of America in London says he's looking forward to returning to Paris for precisely this reason: "'I'd prefer to be paid in euros as would a few of my colleagues. - We all have liabilities like mortgages overseas."

However, even a 20% fall is unlikely to have French and German bankers packing their bags. Some U.S. banks calibrate compensation in dollars before converting it into pounds which means that - in theory, London bankers could even end up better off as the pound also falls against the dollar (although in reality banks tend to pay on a constant currency basis). On this basis, it's British banks like Barclays that really stand to suffer.

Equally importantly, though, pay in Europe is still low compared to London. As the latest remuneration report from Citigroup in Germany reflects, pay in Frankfurt is generous, but not excessively so. In 2017, for example, the 172 front office employee of Citi's Frankfurt Institutional Clients Group each earned an average of €269k, including a bonus of €105k. In the UK, by comparison, the 469 people in Citi's Institutional Clients Group each earned an average of £927k for 2017. - That's €1m even at today's exchange rate.

Clearly it's cheaper to live in Frankfurt. Clearly, too, Citi has some of its highest paid staff at its historic European headquarters in Canary Wharf and they will earn more. Even taking this into account, though, pay in London is far higher than elsewhere and it's easy to see why European bankers have chosen the City as a place to work. The falling pound alone is unlikely to change their minds. However, the combination of a falling pound, Brexit and higher income taxes under a government led by Jeremy Corbyn may do the trick.

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