(BBG) Bankers Think Twice About That Sunny Spanish Bolthole

(BBG“London, whatever happens, Madrid will be there for you.” That was the slogan of last year’s campaign to woo Brexit-scarred bankers to Spain — carried proudly on the side of a red double-decker bus.

Yet while the Spanish capital has certainly served as a haven for Catalan companies fleeing the fallout from the illegal referendum, it may have dropped down the list for bankers bolting from Brexit.

Madrid is one of the six front-runner euro zone hubs vying for finance jobs as Britain prepares to quit the European Union, with Dublin and Frankfurt leading the pack. Citigroup Inc., Goldman Sachs Group Inc. and UBS Group AG all have Madrid on their list.

Spain was never an obvious choice for a new headquarters, but falling wage costs and labor reforms have made it attractive for back-office jobs. Foreigner-friendly tax breaks and fintech-friendly beach city Barcelona are magnets for some bankers.

With tensions over Catalonia calmer but by no means gone, it’s hard to see how Madrid doesn’t lose some of its sunny appeal. It will take a deft political touch to ease fears about medium-term stability, which hasn’t been apparent so far.

It’s true that for bankers already in Spain, the illegal Catalan referendum and the threat of a messy secession have burnished the capital’s image. Several Catalan-based firms quickly shifted their base to Madrid to escape the risk. They’re unlikely to move back quickly.

The economic damage of losing companies such as Banco de Sabadell SA, CaixaBank SA, Immobiliaria Colonial Socimi SA and Abertis Infraestructuras SA — a combined 55 billion euros ($65 billion) of market value — probably contributed to Catalan President Carles Puigdemont backing down on Tuesday.

But internationally, in the short term at least, Spain has become a harder sell. The country is maintaining its tough line against the secession campaign, with Prime Minister Mariano Rajoy’s administration warning that one of Spain’s richest economic regions has been plunged into the “highest level” of uncertainty. The possibility of Rajoy suspending Catalan self-rule via Article 155, which would be uncharted territory, can’t be ruled out.

Consumer behavior may prove unpredictable; the color of a bank’s flag is already guiding depositors. The economy may suffer. Tensions could last a lot longer than expected. London bankers, and bosses, have reason to think twice.

True, much depends on how Rajoy’s government reacts. One banker expects the Spanish government to look for an “elegant” solution that punishes Puigdemont without suspending Catalonia’s existing autonomy. That might downgrade a full-blown crisis to a mere political risk that’s easier to shrug off: Think Scotland’s referendum in 2014, rather than Brexit in 2016.

But Madrid certainly hasn’t handled Catalonia elegantly so far. Police batons don’t really do that. With global companies pretty spoiled for choice on where to move jobs after the Brexit vote, and some waiting on the possibility of a delayed British exit, Spain’s pitch to the City of London is a little less beguiling.