A case of the jitters
As the Scottish referendum nears, capital takes fright
BEFORE this week many investors and money managers had dismissed the possibility that Scotland would vote to leave the United Kingdom on September 18th as too remote to worry about.
But then came a poll by YouGov for the Times newspaper showing that support for independence had risen sharply.
And so all the well-rehearsed uncertainty over an independent Scotland's economic and financial arrangements is beginning to feel rather less theoretical, and more urgent.
Most jittery are banks, pension funds and other businesses with significant cross-border interests.
Polls from the Scottish Chambers of Commerce have shown in the past that 10% of firms have considered moving away from Scotland if the country votes to go it alone,
that a further 8% have definite plans to move and that 5% would expand their English operations or set up an English company.
More such businesses have spoken openly as the referendum nears.
Standard Life, an insurer, has said it has drawn up contingency plans to move south in the event of a “Yes” vote.
It has been widely reported that Lloyds Banking Group, which owns Bank of Scotland, would shift its headquarters from Edinburgh to London as well.
Douglas Baillie, a pensions expert, says that clients from south of the border are ringing up,
worrying about the future of their pension and life-assurance policies held in the likes of Standard Life,
Scottish Widows (owned by Lloyds) and Aegon (formerly Scottish Equitable).
All are Edinburgh-based and among the largest pension funds in Britain.
English investors want to know whether they would still be paid in pounds, says Mr Baillie.
They also worry that they would no longer have any sway through the ballot box over the tax regime governing their pensions.
If Scotland votes to leave, warns Mr Baillie, the flow of pension money into the Scottish-based insurance companies from outside Scotland may well dry up.
And there would be transfers out, to English-based companies. “They will run for cover, to a safe haven,” he says.
This fear of capital flight is most worrying. The share price of Lloyds slid slightly after YouGov's poll was released.
The pound has fallen slightly, too, although this cannot be attributed entirely to worries over the referendum.
One senior banker, Bill O'Neill of UBS Wealth Management, says that the markets have moved from pricing Scottish independence at a “one in six chance to about one in four”,
and that some money has already been moved out of Scottish bank accounts and assets,
mainly by clients with self-invested pensions worried about company stocks exposed to Scotland.
But for the time being this is merely “precautionary”, he says.
Another wealth manager, Bryan Johnston of Brewin Dophin,
says his clients are also seeking advice on precautionary measures in case of a “Yes” vote.
Investors are taking out derivatives to hedge against volatility in the pound and equities.
If the prospect of a departure worries bankers and investors, of course, an actual one would cause enormous upheaval.
Nationalists have set a date of March 2016 to separate from the United Kingdom. That is probably too ambitious.
However long the negotiations take, they will be tortuous and ill-tempered.
Almost everything, from currency to nuclear weapons, would be on the table, making for a fluid, uncertain picture. Expect the jitters to continue.