In November, the Bank of England's deputy governor Jon Cunliffe made a speech to resounding applause. He said it would take time for a new financial center to recreate London's "cluster effect" after Brexit. Breaking up the city's settled crew of bankers, lawyers and accountants, based in the Canary Wharf business district, would come at a cost for European economies too, he said.
His words were music to the ears of industry players who believe it's in everyone's best interests to keep London largely intact as Europe's financial capital. But that argument has fallen deaf as a "hard Brexit," which would see Britain tumble out of the European Union's single market for goods and services, has become increasingly likely.
And according to London bankers and lobbyists, this could mean a very messy breakup of the financial sector.
"London is of strategic importance for all of Europe," said a senior banker who sits on an important advisory board coordinating the industry's lobbying activities, but declined to be named. "If you jeopardize that, and force the banks to embark on large-scale relocations and redistribute their capital, their ability to serve customers throughout Europe will suffer greatly."
That may be true. But if banks really want to maintain London's status, they'll have to turn their lobbying attention elsewhere.
"We must now focus more heavily on Brussels and the continent," said one lobbyist for a large foreign bank in London. Putting pressure on Britain is of limited value, since the final deal would be mostly shaped by the E.U.'s 27 remaining member states.
So the London-based banking industry is preparing to go on offense. Its best-case scenario: retaining E.U. access while staying in London.
Financial insiders say Brexit relocation plans are causing serious internal conflicts, especially at U.S. banks.
So far, British banks' access to the E.U. has been achieved through so-called "passporting" rights, where banks are permitted to sell their products and services across Europe while being based in London.
If Ms. May sticks to a tough line on Brexit, banks will lose these rights. Instead, lobbyists are alternatively campaigning for the two sides to adopt a so-called equivalency principle, which allows financial companies from non-E.U. countries to receive E.U. market access if their financial regulations are regarded as being up to snuff.
Banks in London want to refine and expand on the principle to completely offset the potential loss of passporting rights. But that will require the approval of Brussels.
In the meantime, financial institutions are also beefing up their presence in other E.U. countries, so that they can still easily manage their business on the continent post-Brexit, including things like managing IPOs, advice on trading and bond issuance where British banks have long played a strong role.
U.S. investment banks are especially starting to migrate. According to financial insiders, Goldman Sachs plans to cut its London staff in half, to about 3,000 employees. Up to 1,000 jobs are expected to go to Frankfurt, with the remaining employees being relocated to other European countries and the bank's New York headquarters. JP Morgan is also considering moving 4,000 more jobs than initially planned, as Chief Executive Jamie Dimon indicated at the World Economic Forum in Davos.
Consulting firm Oliver Wyman estimates that Brexit could cost the British financial sector up to 75,000 jobs.
London-based banks are still examining various scenarios and are likely to announce new plans in coming months. "We will reach decisions in the first half of the year," Jim Cowles, the European head of Citigroup, said last week. "It's a decision every bank will have to make in the first six months of this year."
In addition to Frankfurt, alternative locations for London bankers and investment managers include Dublin, Paris, Luxembourg and Amsterdam.
Consultants and lawyers are advising banks to hurry. Completing a move could take up to two years, especially obtaining approval from financial regulators. Ms. May wants to begin official E.U. exit talks with Brussels by the end of March. Negotiations can take up to two years, leaving the U.K. out of the fold as early as spring 2019.
It's a conflict between British employees and their foreign coworkers, who no longer feel quite as welcome on the island. Recruitment consultant
According to financial insiders, Brexit relocation plans are causing serious internal management conflicts, especially at U.S. banks. Goldman Sachs has apparently accelerated the departure of two London bigwigs over the dispute. The argument largely centers on whether executives are convinced a deal that allows London to maintain its financial status can still be reached.
"Decision makers in the United States want to minimize risk and quickly create clarity when it comes to the Brexit," said one top London banker, who declined to be named. "They have little to no understanding of how the E.U. works, that compromises can indeed be made, but that this takes time."
A recruitment consultant whose clients include investment banks in London sees another conflict. "It's between British employees and their foreign coworkers, who no longer feel quite as welcome on the island." Differing views on the E.U. and Brexit have created a deep divide that makes working together a challenge.
"In addition to the forced relocations," said the headhunter, "there will also be quite a few voluntary ones."