David Dawkins leads the weekly wrap from Westminster as private client specialists react to Brexit uncertainty
MPs return from their Christmas recess today to find yet another house swollen with acrimony, anger, uncertainty and gout. This week the Brexit battle begins anew, and according to the Times, shy Tory MPs are being badgered into daily attendance to vote on a three-line whip every day next week, including Friday. Last year’s celebration of Christ’s birth might well have ended for MPs, but expect the yule-tide cycle of shouting, drunkenness, melancholy, revenge and deep regret to continue regardless.
The will-they-won’t-they melodrama of so-called ‘Brexit concessions’ remains the hot topic this week, but Prime Minister Theresa May has very little (basically nothing) to add to the pre-Christmas deadlock: the vote won’t pass, the EU won’t budge. Despite Politico’s report that ‘something helpful’ could yet be offered from the EU, such a ‘promise’ or ‘fig leaf’ won’t come until after the vote. A likely defeat, May confirmed to Andrew Marr on Sunday morning, that should and could go ahead as planned next week. ‘Yes, we are going to hold a vote,’ she told Marr, giving the Jan 15th as being ‘that sort of timing’.
Too little too late for PM May? Perhaps, but for private client specialists of London, the ‘potentially traumatic’ prospect of ‘no deal’ remains unlikely. Trevor Abrahmsohn, prime property veteran and founder and CEO of Glentree international (who counts Lakshmi Mittal, Simon Cowell and Ringo Starr as clients, no less) tells Spear’s that the Commons lacks ‘the appetite’ for a no-deal scenario. For Abrahmsohn, this is all part of a necessary dance before the real deal is done. Adding that the ‘house-style’ of EU negotiations is for ‘11th hour deals’ and it is only at the ‘crescendo of this drama’ that we’ll know exactly where we really are.
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However, in the now likely event of the vote on the 15th (or 16th) failing, Abrahmsohn tells Spear’s that the UK must return to the table with a more business-like approach and recognise that EU leaders are ‘far too preoccupied with the aspiration of a federal Europe’ to consider ‘damage inflicted on even their own nations’. Which is, In fact an ‘acceptable price to pay’ for their ideas of what Europe could and should be.
He tells Spear’s: ‘One hopes and prays that the cacophony of howls of protest and lobbying by the German car manufacturers, French wine and cheese producers and the Dutch flower growers will, in aggregate, have some effect on the EU leaders.’ However, he adds as the EU’s, ‘obstinacy and obduracy may prevail.’
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In the red corner, this week could well see Labour forced to abandon its position of ‘triangulation’ – a fancy term for the balancing of traditional Brexit-favouring Labour voters, with its urban, liberal, ‘youth-wave’ membership demanding a referendum re-run under the nomenclature of a ‘people’s vote.’
The Labour leadership is caught between its manifesto promises and deep-rooted euro-scepticism on one side, and the noisy liberal europhile centrist voices on the other. The battle of the long-gone Tonys – Benn and Blair – rages at the heart of Labour’s Brexit position. Expect more pressure on Corbyn to commit to a second referendum that he very obviously doesn’t want.
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For Abrahmsohn, Corbyn has made a ‘bugger’s muddle’, out of the whole Brexit scenario, which, he adds, ‘in anyone else’s hands would have been a golden opportunity to maximise and this is illustrated by the latest polls which indicate that the Tory Party is still two per cent ahead, despite the shenanigans and resignations of key ministers, over the last few months.’
Under the hood: Iain Tait, partner, head of private investment office at London & Capital
Politics and clients: biggest concerns?
My client calls since the new year have been dominated by Brexit. The uncertainty of the political backdrop is front of mind now for our clients.
From around 7 am this morning the two calls I’ve had are from hedge fund managers, guys who are often paid in dollars even if based in London. They’ve been asking our opinion on what they should be doing with their pending dollar bonuses regarding sterling. I’ve been in this trade for 21 years and I can’t think of a time when we’ve been less able to give constructive advice on what’s really quite a normal question, that being, what are our views on FX and cable (£-$). It’s every waking moment.
What happens when MPs vote?
What clients are looking for is some indication from us on the short and medium term risk of Brexit. The first question we have is what is the probability of this deal being passed by MPs? There is certainly a greater chance that it will be rejected. When that happens the true vent for the UK – the escape valve – initially will be sterling, just like it was back in June 2016.
Sterling-dollar today is trading at 1.27- in the case of the deal being passed and the ‘soft’ Brexit going through – our response to that – if we do get May’s deal accepted it’s likely that you’ll get a bigger relief rally. Sterling will bounce to the mid 1.40s. The downside risk is in the mid 1.20s – we think a lot of the bad news is already baked into the price. We’ve don’t believe in dollar-sterling parity one-to-one – it will definitely weaken further. But anyone who sounds too smug and smart on precise numbers should be laughed out of the room.
The C word
For our clients the threat of a Corbyn government exceeds concern for a ‘hard’ Brexit. Our clients are beginning to make peace with a hard Brexit, and I’m certainly sensing that this ‘no deal’ Brexit, as it moves closer to being a reality, may not be quite as horrific as the liberal press would have us believe.
There is only one reason why you [a HNW client] would be asking your wealth managers and advisors on what they can do to maximise the tax efficiency and asset protection. Wealthy families that are highly liquid and international in their outlook will be looking to have a least part of their liquid asset base positioned outside of the UK. There have been more questions on the big C word, than on Brexit. It is quite difficult to make plans around the rhetoric of what we’re hearing from John McDonnell, and it’s truly frightening. We now talking strategy: making use of basic tax-free allowance pots. Preemptive redistribution of wealth within families. Clients have also asked to re-position their liquid wealth outside of the UK – not for tax reasons – they’re taxed exactly the same if they have accounts in Jersey or in London. But this is the threat of capital controls. This still feels really extreme to me.
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