Wednesday

23rd Aug 2017

Grim forecast for UK banks after Brexit

  • Banks to start moving staff out of London to new EU branches prior to September 2018 to enrol children in schools (Photo: Leo Hidalgo)

Banks will need up to $50 billion (€42.3 billion) in extra capital and see higher costs of $1 billion (€846 million) to diversify out of the UK and into the EU after Brexit, a leading consultancy has said.

Up to 35,000 jobs in the financial services sector overall and 17,000 jobs in the wholesale banking area were likely to shift out of the UK to the EU in the medium term, Oliver Wyman, a New York-based consultancy, said in a report out on Monday (31 July).

  • Frankfurt - the home of the ECB - emerging as favoured location (Photo: barnyz)

The move would come as banks opened new branches and subsidiaries in the EU in order to be able to keep trading there freely.

But the movement of jobs from the UK "could ultimately be greater” in the long term as banks pooled staff in Europe to “encourage collaboration among salespeople, traders, and risk managers”.

European Central Bank (ECB) requirements for big banks to show they “have strong local control and governance” would also contribute to the trend.

Wholesale banks, which sell services to corporate and institutional clients, could alone move 40,000 people out of London to EU alternatives in the long term, Oliver Wyman estimated.

It said Amsterdam, Dublin, Frankfurt, Luxembourg, and Paris were “emerging as the main destinations”.

It said Frankfurt, the home of the ECB, was popular for the sake of “supervisory stability and influence”. Dublin was liked for its low taxes, while Paris and Amsterdam were considered “attractive and convenient locations”.

Oliver Wyman said a hard Brexit, in which the UK lost access to the single market, would “fragment the European wholesale banking market” and “make it significantly less profitable” as banks would have to finance their new EU branches and store capital for new operations.

“Banks could see two percentage points knocked off their returns on equity of their wholesale banking operations in the region,” the US consultancy said.

It said many bank CEOs were looking to “minimise expense and disruption by relocating as little as possible in the first instance”, while awaiting how Brexit talks panned out.

But with the UK exit looming in March 2019, “over the next six to 12 months … actions will be needed that are more costly and harder to reverse - such as injecting new capital into EU entities, moving employees, appointing senior management, and building dealing room infrastructure”, it added.

The consultancy said issues like the Irish border, citizens’ rights, and the Brexit divorce bill, rather than the banking sector, were the politicians’ top priorities for now.

It said “job losses in London and reduced tax revenues mean the UK has a clear interest in avoiding” loss of access to the single market.

But it added that: “So long as the outcomes of the Brexit negotiations remain unpredictable, banks must act as if a hard Brexit is coming”.

EU agency relocation race starts with 23 cities

Cities from 21 countries have applied to host the two London-based EU agencies, which will have to be relocated after Brexit, with Luxembourg throwing its hat in for the banking authority.

News in Brief

  1. Air Berlin insolvency talks begin amid 'stitch-up' accusation
  2. EU calls on Serbia and Macedonia to remain calm
  3. Schulz wants US to remove nuclear weapons from Germany
  4. Ukraine and Russia to announce another ceasefire
  5. EU to investigate Monsanto-Bayer merger
  6. US will ask Nato allies to send more troops into Afghanistan
  7. Greece to be absent at event on Communism and Nazism
  8. Czechs want observer status in Eurogroup meetings

Stakeholders' Highlights

  1. European Jewish CongressEuropean Governments Must Take Stronger Action Against Terrorism
  2. European Healthy Lifestyle AllianceDoes Genetics Explain Why So Few of Us Have an Ideal Cardiovascular Health?
  3. EU2017EEFuture-Themed Digital Painting Competition Welcomes Artists - Deadline 31 Aug
  4. ACCABusinesses Must Grip Ethics and Trust in the Digital Age
  5. European Jewish CongressEJC Welcomes European Court of Justice's Decision to Keep Hamas on Terror List
  6. UNICEFReport: Children on the Move From Africa Do Not First Aim to Go to Europe
  7. Centre Maurits CoppietersWe Need Democratic and Transparent Free Trade Agreements Says MEP Jordi Solé
  8. Counter BalanceOut for Summer, Ep. 2: EIB Promoting Development in Egypt - At What Cost?
  9. EU2017EELocal Leaders Push for Local and Regional Targets to Address Climate Change
  10. European Healthy Lifestyle AllianceMore Women Than Men Have Died From Heart Disease in Past 30 Years
  11. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  12. ACCAAnnounces Belt & Road Research at Shanghai Conference