Is this the Brexit banking exodus Theresa May told us couldn’t happen? | Nesrine Malik

The latest financial institution making plans to relocate jobs away from the UK is Morgan Stanley, which has announced that Frankfurt will become its post-Brexit EU hub, a move that could shift an initial 200 jobs to Germany.

Morgan Stanley joins Standard Chartered and Nomura, both of which also picked Frankfurt as a new EU base, and JP Morgan and Goldman Sachs, which are moving jobs out of London to various other centres. Morgan Stanley’s asset management arm is to relocate to Dublin, as several European cities woo jittery banks that will not hang around to see what final deal is hammered out between the UK and Europe before they start looking elsewhere. A competition to host the UK’s bankers post-Brexit would have as its slogan: “Better in than out.”

The key for banks is regulation. The moment it was announced that the UK would leave the single market, the die was cast. Even if Brexit goes smoothly from a regulatory standpoint, which is wishful thinking, certain financial institutions that cater to Europe would need to move onshore, since conducting business would be more expensive otherwise. In some cases, it is mandatory from a compliance perspective that transactions are onshore. The beginning of a flight to Europe is not necessarily a hedge against uncertainty. In many instances, there is no choice.

Not long ago the threat of bankers leaving London en masse – often deployed by financial institutions such as HSBC – was considered an idle one. Leave London, with its favourable regulation and amenable political class, its convenient red-eye flights to New York and thriving cultural scene? Sure, the option was there if the climate ever became too hostile, but few really expected it to do so.

During the 2009 furore over the government’s plans to levy a supertax on bankers’ bonuses, I recall colleagues in the private investment firm where I worked scoffing at their own industry’s threats to relocate from the UK due to the punitive legislation. “Where are they going to go?” a co-worker observed. “Geneva?”

Everyone smugly tittered. The joke was that Geneva was boring, and not even keeping more of your pay would make you move there. This was the conventional wisdom in the City of London: apart from London’s strategic location and convenient regulatory infrastructure, there were intangible benefits that meant that only the most philistine would consider moving for financial gain – not to mention the massive headache and cost of moving. The bottom line, as far as banking institutions are concerned, is not only financial.

These attitudes were turned on their head by Brexit. But like all Brexit-related fiascos, it is not being confronted. The responses have taken the now familiar route from denial (it won’t happen), via minimisation (if it does happen, it won’t be that bad), to steeliness in the face of self-harm (it will happen and it will be painful, but it will be worth it).

Moreover, because bankers as a breed have been vilified by both the right and the left, it is even less likely that anyone would argue their case in the court of public opinion. A simplistic stereotype has been swallowed whole by the majority of the electorate. A bunch of fat-cat non-dom taxpayer-bailed bankers – probably foreign to boot – leaving town is not the hill anyone wants to die on. Good riddance. But not all people who work in a bank are “bankers”. In fact, at a place like Morgan Stanley, where I worked, bankers are not even the majority: lawyers, brokers, accountants, receptionists, personal assistants and cleaners are.

Financial services employs 7.3% of the UK workforce and, the year before the Brexit vote, contributed a record £71.4bn in taxes, almost 12% of total government tax yield. This puts the Tories in a most awkward position. The party that is supposed to represent clear-sighted financial acumen must now put Brexit ideology before financial sense as far as popular messaging is concerned – while also desperately trying to implore bankers not to leave.

Theresa May’s government has until now focused on criticising corporate elites and signalled that banks will not be a priority in the Brexit talks. But at Davos earlier this year, May said: “I value financial services in the City of London, and I want to ensure that we can keep financial services in the City of London. I believe that we will do just that.”

It is too late for that sort of talk now. It is highly unlikely that the drain can be limited only to EU-serving financial services. As talent and infrastructure move and become embedded elsewhere, so a sense that the centre is shifting develops. A practical adjustment will be followed by a psychological one. The question isn’t if Brexit is going to damage the UK’s financial services industry. It is how bad will that damage be.