Authorities in the Netherlands were anxious ahead of Brexit. Unlike counterparts in other European capitals who saw opportunity in Britain’s withdrawal from the EU — the chance to pick up more business and financial services jobs — the Dutch government worried about a blow to its economy as a major trading partner left the bloc.
The Dutch government ran a public awareness campaign to alert companies to the dangers. It portrayed Brexit as an annoying blue furry monster, an obstruction that prevented Dutch businesses from getting to meetings or delayed transport shipments to Britain. Stef Blok, the foreign minister, tweeted: “Make sure Brexit doesn’t sit — or lie — in your way.”
Yet since the UK left the single market nine weeks ago, Brexit has been as much an opportunity as an obstruction to the Netherlands. In the race to scoop up business leaving London it is Amsterdam, and not larger banking centres such as Frankfurt and Paris, that has shone.
With EU regulators striving to regain oversight of all euro-denominated business, Amsterdam has already displaced London as Europe’s main centre for share trading as more than €8bn a day of EU share dealing was forced back into the bloc. The Dutch financial capital has also taken more than 20 per cent of the euro swaps market and more than $160bn on the sovereign debt trading markets. That transfer will be further supplemented in June, when trading of Europe’s €1bn-a-day flagship carbon emissions market also relocates to Amsterdam.
“The city is booming. The international schools are building like crazy. The business that’s come is a natural consequence of Brexit,” says Guus Warringa, a director of Stichting Capital Amsterdam, a foundation that promotes Dutch public markets. Even so, he acknowledges it has come as a surprise to some observers. “There was no plan to get Londoners to Amsterdam.”
Investment bankers are now talking of it as a European hub for the global boom in blank-cheque companies known as special purpose investment vehicles, or Spacs.
This surge in activity may only faintly echo the city’s Golden Age of the 17th century, in which the explosion in global trade produced the world’s first joint stock company — the Dutch East India Company — and its first stock exchange, and the nascent market in derivatives around the tulip mania of the 1630s.
Nevertheless, Stéphane Boujnah, chief executive of Euronext, which owns the Amsterdam stock exchange, labels it “an interesting wake-up call” that points to a more profound shift.
“London is a great financial centre that tries to attract global flows to finance global projects or financing [for] the UK economy,” he says. “But it’s not any more the financial centre of the European Union.”
In the longer term only Paris can serve that role, he believes. Since the UK’s 2016 Brexit referendum the French capital has sought to lure bankers and financial firms, offering tax breaks and other incentives. By the end of 2020, some 2,500 jobs and €170bn in assets had shifted from London to Paris, according to French central bank governor, François Villeroy de Galhau. Officials in Paris are confident they can snatch an even larger share of the financial activity flowing out of the UK, and in particular the valuable trading teams.
Yet whether Amsterdam can surprise again and build on these early eye-catching gains will depend as much on the Dutch authorities who have adopted a tough stance on banking pay and bonuses as the response of Europe’s other big financial centres.
The threat from Amsterdam is taken seriously in London, even though the UK has a seen a resurgence in new listings, such as Deliveroo and Moonpig.
“Increased flows of business to Amsterdam make the point that we face stiff competition as a financial centre not just from the US and Asia but from elsewhere in Europe,” said Jonathan Hill, the former EU commissioner, as he unveiled recommendations to make the City of London more attractive for new listings. It included making the UK a stronger potential venue to list Spacs.
“We should take the best from what our competitors around the world are doing and combine that with London’s traditional strengths,” he noted.
Banker bonus cap
Despite the rhetoric, British fears may yet prove overblown. Amsterdam has enjoyed only a small jobs boost since the UK referendum. Just over 1,100 financial services jobs have been created in the Dutch capital since 2016, joining an industry that employs 50,000 people, according to the mayor’s office. It represents a fraction of the 7,000 jobs estimated to have left London for the EU since the Brexit vote.
Unlike rivals such as Frankfurt or Paris, Amsterdam authorities and the Dutch government made little or no attempt to woo financial services to the country after Brexit. The country is the fifth most popular destination for those relocating roles out of London behind Ireland and Luxembourg, France and Germany, according to New Financial, a UK capital markets consultancy.
Public opinion towards bankers since the financial crisis — when the Dutch government was forced to bail out ABN Amro and Fortis — remains hostile. A significant deterrent for many bankers looking to relocate to the country is a national banker bonus cap, which is the strictest in the EU.
The Netherlands limits banks, insurance and investment companies to offering bonuses of no more than 20 per cent of an employee’s annual salary, against an EU-wide average of 100 per cent. In 2018, only 37 people in financial services in the Netherlands earned more than €1m compared with 3,614 in Britain, according to the European Banking Authority.
Victor Everhardt, deputy mayor of Amsterdam, says the city has not “actively attracted finance professionals or bankers” in the wake of Brexit. Rather, it has focused its efforts on luring in talent from sectors where there is a shortage of skills and labour, such as the tech industry, he says.
“We look at this from a broader perspective than just Brexit because of the important role international companies play in creating jobs,” says Everhardt. “When it comes to attracting professionals from abroad, we focus on sectors where there currently is a shortage of available talent.”
The influx of trading activity is unlikely to change that stance. House prices in the city have doubled to an average of €507,000 since the depths of the eurozone crisis in 2013.
“Amsterdam has become very popular for tourists and expats. It’s becoming very hard to find suitable housing for clients,” says Tjerk van der Linden, managing director at Engel & Völkers, an estate agency. “[Yet] we haven’t seen as much business from the financial services industry as we expected.”
Roel Beetsma, an economist at the University of Amsterdam, says a hardening shift in attitudes against multinationals — including among the centre-right People’s party for Freedom and Democracy of prime minister Mark Rutte — means that the government is “not openly courting financial services to the country”.
“Rather than abolishing the banker bonus cap, we are moving more in a direction of tightening it,” says Beetsma, who has advised high-frequency traders from the US on the suitability of Amsterdam as a destination for their EU operations.
Personal taxes can reach up to 50 per cent for the highest earners, while the duration of a tax advantage scheme designed to attract foreign employees with specialist skills was reduced from eight to five years.
As a result, Amsterdam is emerging as one of the biggest cities in Europe for fintech, or financial technology, but the world’s largest investment banks — such as Goldman Sachs and Morgan Stanley — are expanding in Frankfurt and Paris.
Where Amsterdam has outperformed its rivals is in snagging many of the world’s big markets operators, such as the London Stock Exchange Group, data and media company Bloomberg, and CME Group, the US futures exchange. Senior industry executives speak of the Dutch regulators’ sophistication and knowledge of markets, the widespread use of English in the Netherlands, and its transport and IT infrastructure.
Zuidas, the financial district with towers of glass and oblique facades — home to ABN Amro and Freshfields Bruckhaus Deringer — is only 10 minutes from Schiphol airport. London, Frankfurt and Paris are only an hour’s flight away; Brussels is only two hours by train. The Amsterdam Internet Exchange, started in the 1990s to connect telecom companies and cloud providers, is now one of the largest hubs of internet traffic in the world.
Traders like the country’s governance and its regulatory framework, which they say are more market-friendly than other European jurisdictions. For example, the Dutch regulator disagreed with a short selling ban — applied by its European counterparts in the market turmoil in March 2020 as the pandemic began to close economies — designed to prevent investors from benefiting from falling share prices.
Capital markets bankers are also attracted by the Netherlands’ latitude on dual-class share structures, which let founders hold on to additional voting rights after a listing.
“The UK is changing its rules to get more aligned with ours, I would say,” says Laura van Geest, chair of the Dutch Authority for the Financial Markets. “We feel the responsibility to make sure that the platforms and the traders have a stable infrastructure, that we will supervise them [and] that the trading takes place in a fair and transparent manner.”
However, the AFM did not feel the need to become more internationally competitive. “Obviously, we aim to be an efficient and knowledgeable supervisor, but mixing supervisory goals with competitiveness could result in compromised trading,” says van Geest.
For some traders the choice of whether to relocate or not was dictated by their customers, with asset managers and banks in the bloc prevented from either trading EU shares or certain swaps in London after Brexit, or finding that the cost of doing so had become prohibitive.
Amsterdam has been home since the 1980s to some of the world’s biggest and longest established market makers, intermediaries such as IMC and Optiver who buy and sell millions of shares, bonds and derivatives on the global markets every day. Together with proprietary traders, they were exempted from the wide-ranging bonus cap. The city also hosts a clearing house that even before Brexit handled nearly a third of the daily €45bn market for trading shares in Europe.
Critics argue that Amsterdam’s success has only served to further fragment Europe’s capital markets, and would inhibit the likelihood of a single city in the bloc successfully replicating London.
Euronext’s Boujnah says there are parallels with the US capital markets, where different cities have specialisms. New York is a centre for banking, Chicago has futures trading, Boston is home to many mutual funds and California is home to private equity and Silicon Valley money.
“The concept of one single physical centre, which was relevant when Britain was in the EU, is not a prerequisite in the post-Brexit world,” he says. “We will move into distributed and interconnected financial centres. Each city will have their own particular features. You move your teams to be close to clients, to be close to investors, to be close to talents, to be close to effective regulation.”
The struggle for business
Some in the industry feel that London still exerts the greatest gravitational pull in Europe and will do so for many years. Modern day trading is largely automated, carried out remotely by algorithms and powered by vast out-of-town data centres. Booking the trades and the legal oversight of them is increasingly taking place in cities such as Amsterdam, but the physical process of executing the deals still takes place at sites in the UK.
Trading of carbon emissions, for instance, may be moving to Amsterdam but Intercontinental Exchange, the operator, will continue to manage the risks associated with daily price moves at its clearing house in London. Those trades will sit alongside ICE’s gas contracts, which are also traded in Amsterdam but cleared in London.
Financial firms often trade the assets together across borders but consolidate their positions at a single clearing house to save themselves millions in additional daily payments to insure their positions. Currently, EU banks have temporary access to UK-based clearing houses. But the EU wants the banks to move their euro-denominated trades into the bloc by mid-2022 when the permit, known as equivalence, lapses. That move would benefit Frankfurt and Paris, which host clearing houses.
“We need to be careful what people think the impact is because the trading itself is so electronic, it’s just a few switches in a data centre. The actual capital raising is a different process . . . Decisions are still being taken in London, it’s where the actual money is being managed,” says Dennis Dijkstra, chief executive of Flow Traders, an Amsterdam-based market maker that buys and sells exchange traded funds.
It is a view echoed by Christian Noyer, a former French central bank governor who says he is “barely worried about Amsterdam”.
“The teams [of traders and sales people] in Paris are going to make decisions about where to trade for their clients, between the platforms in Amsterdam or Paris,” he says. “But they’re not going to send their teams elsewhere, those that are based in Paris are going to stay in Paris.”
Some people, says Noyer, “are trying to say that Amsterdam has, overnight, turned into the number one financial city in Europe. That is absurd, obviously it makes no sense.”