December 30, 2016

Investment Banks’ Next Trade Will Be EU Education

by Breakingviews.

Education could be the big trade of 2017 for investment banks. No European city has as many international school places as London. That’s a problem for firms thinking of shifting staff out of the UK capital following the referendum to quit the European Union. The solution is for banks to get into the education business themselves.

In London, bankers can choose from a wide range of state-funded, private and international schools when deciding where to send their offspring. In other European countries, however, English-language education is more limited. Madrid has 20 schools that meet the U.S. government’s approval. But Paris has just 11, while no other European financial centre makes double figures. French government-approved schools are even less prevalent.

Investment banks have long been aware of the problem. Years before the Brexit vote, JPMorgan wanted to work out how hard it would be to move its London-based currency trading desk to Paris. The U.S. bank concluded it would take 30 years to find school places for the children of the department’s 800 employees, says a person who worked on the project.

Banks also have a knack of coming up with financial solutions. In Asian cities like Singapore and Hong Kong, financial institutions buy corporate debentures – effectively interest-free loans – that guarantee them a certain number of places at local international schools. In London, French banks BNP Paribas, Calyon and Societe Generale extended a long-term loan to fund the creation of a French school in Kentish Town in 2011. BNP also financed the foundation of a lycée in Wembley in 2014.

According to corporate-relocation executives, new schools often spring up in short order when workers move to a city. But housing shortages make it harder for finance workers to move. Only Madrid appears to have any great additional housing capacity, though even then only enough to absorb a smattering of refugees from the City of London.

So banks will need to work hard to persuade staff of the merits of relocating. Funding new schools – and using the promise of guaranteed places for their children to lure workers – could be the year’s hot investment-banking trade.

This view is a Breakingviews prediction for 2017. Click here to see more predictions.

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