Last week, a Swiss bank UBS threatened the U.K. government to relocate at least 30% of its London-based jobs because of Brexit. But is Brexit really the one to blame here?
UBS (NYSE: UBS) has joined J.P. Morgan (NYSE: JPMorgan Chase & Co [JPM]) and HSBC (NYSE: HSBC) in warning to shut down a major part of its financial business in London as a response to the lack of clarity regarding Brexit's economic consequences. The bank said that approximately 1,500 out of 5,000 London-based jobs would be relocated elsewhere in Europe in the coming months. UBS' CEO Sergio Ermotti mentioned 'passporting' to be the banks' biggest concern as the Brexit changes may restrict the bank's ability to freely trade products and services in Europe.
"We currently employ more than 5,000 people in London, and probably 20 percent to 30 percent of our workforce could be affected. We believe that London will continue to be an important financial center, although maybe not as important as it is today," Ermotti told the Japanese newspaper Nikkei, reported Bloomberg.
However, Brexit might not be the real reason why UBS wants to move such a significant part of its workforce away from London. A journalist Sarah Butcher says that the Swiss bank uses the buzz around Brexit as a cover to do something the bank has planned for a long time, even before Brexit actually happened. And that is to cut costs. It is still unclear whether the bank will choose another European financial hub like Frankfurt and Amsterdam or even stay in London altogether, but it is clear that the bank's jobs are disappearing from London already now. Interestingly, they are not moving to one of those established banking capitals but rather to provincial towns in Poland.
Turns out that in the past months, UBS has seriously reshuffled its hiring priorities. The bank has significantly cut the number of job openings in Europe and in London in particular, whereas the number of job opportunities in such previously unpopular destination as Poland skyrocketed.
According to Butcher's analysis, UBS currently offers more than 250 jobs in Poland as compared to a little over 60 job openings available in London. Poland has already been a popular 'back-office' option for many international companies for years offering mostly outsourced call centers and administrative services. However, the jobs UBS offers in Poland are not generic administrative support jobs, far from it. In fact, the overwhelming majority of the job openings are targeted at finance, risk, compliance and wealth management specialists. Previously, these expert jobs were London's prerogative.
In chase of lower costs
As you might have already guessed, UBS seeks to substitute a large part of its European workforce in London with Polish-based employees that are much more affordable. That is why, the bank's threats to cut the jobs in London office might not be entirely Brexit's fault but rather a simple plan to cut costs. Butcher mentions that the costs of employing a finance professional in London and in Poland are hardly comparable. For example, UBS could employ an associate for about £800 per month, what could never be possible in such an expensive market as the U.K.
Earlier this year, Reuters shared the rumours about two Swiss largest banks, UBS and Credit Suisse, expanding their business to Poland's Krakow and Wroclaw. Back in February, the banks' sudden interest in relocating their workforce to Poland was explained by the growth of Swiss franc making operating business in Switzerland even more expensive. The industry sources told Reuters that employing someone in Poland is 50% to 60% cheaper than employing a similar professional in Switzerland. Poland got even more attractive for the banks after Polish zloty lost over 10% of its value against Swiss franc.
"We have 3,000 people here now and I am hearing in the company that it will go up to about 5,000. IT, HR, operations and finance processes are being shifted to Wroclaw, mainly from London and Zurich," said one of the banks' employees located in Poland.
Reuters also reported that UBS is planning to cut over 1 billion francs in costs. Already last year, the bank brought about 1,300 new employees in its Krakow office. However, the bank has restrained from making any announcements on expanding their business in Poland.
Using the countries offering lower maintenance costs for offshoring has been a popular practice among companies in the past years. Previously, such countries as India and China were the leaders in providing cheap offshore labor, says Financial Times. Yet now the companies are looking for lower business costs, European location and high professional expertise at the same time, and this is something Poland has to offer. In the past years, such giants as Procter & Gamble (NYSE: Procter & Gamble Company [PG]), Shell (NYSE: Royal Dutch Shell Class A [RDS.A]) and HP (NYSE: Hewlett-Packard Company [HPQ]) have been running a significant part of their business in Europe from Poland-based office locations. According to Financial Times, the number of people working in the business sector in Poland was expected to rise by more than 30% in just 20 months since the beginning of 2015.
“This year, we will add 15,000 to 20,000 new jobs in this sector, and roughly 5,000 will come from the financial industry,” Jacek Levernes, the president of Poland’s Association of Business Service Leaders told Financial Times.
Since the announcement of the results of the June 23rd vote, several largest banks have threatened the U.K. government to move their offices to other European capitals if the government fails to negotiate free economic trade with the EU countries. However, UBS example shows that Brexit consequences might not be as devastating as the banks make them sound as some of them simply use the Brexit buzz as an excuse to make more money by cutting costs on expensive London office locations and employees.