Plan Bs will get banks thinking about costs

March 10, 2020

Goldman Sachs’ masters of the universe may be about to swap premium sushi lunches for Greggs sausage rolls. The US investment bank is based in central London but has a backup site in less glamorous Croydon, 11 miles out of town. As coronavirus starts to bite, it might have to use it. The issue then for bosses is how temporary to make the arrangement.
Banks in Britain’s capital are readying workarounds so that crucial trading and IT operations stay intact if the Canary Wharf financial centre goes into lockdown. The moves were given added impetus on Thursday when HSBC sent home over 100 employees after a worker tested positive for Covid-19. The bank’s tower is a stone’s throw from Citigroup and Barclays, and a short walk from Credit Suisse, JPMorgan and Morgan Stanley. Commodity pricing agency S&P Global Platts, also nearby, on Thursday told Canary Wharf employees to work from home until further notice.
That’s not an option for bank employees usually based on a trading floor, which are tightly-controlled environments. Regulators like Britain’s Financial Conduct Authority insist on recorded telephone lines, the ability to log orders and trades quickly into bank systems, and easy access to compliance support. Such requirements are harder to satisfy from the living room of an Islington townhouse, so banks will send traders to backup sites away from central London.
Such “site-splitting” could see JPMorgan staff shipped to Basingstoke, a 90-minute drive southwest of the capital. Barclays traders have a shorter trip to Northolt — a 40-minute tube ride from central London. Commerzbank, which is sending some Frankfurt-based trading and treasury staff to the outskirts of the German city, said in a statement that if an infection occurred, at least one team would be able to continue working.
The exercise may get cost-focused bank chief executives thinking. If a small team based in a cheaper part of town suffices for most critical functions, why move them back? Top-tier City of London offices cost about $90 per square foot, Savills reckons, compared with around $45 for the rest of London and the southeast. One on the same road as JPMorgan’s Basingstoke data centre is $21 per square foot.
Coalition data shows global investment banks on average only generated 7.5% returns on equity last year. There are savings to be made. And if Goldman’s demigods need any more convincing, Greggs now serves vegan sausage rolls.